Illinois Residential Real Estate Market Update - Q1, 2023.
The Illinois residential real estate market continues to largely trend in-line with national trends, adjusting for local differences, such as local migration, employment trends and seasonal cycles.
This market report aims to help the reader understand how the Illinois real estate market compares to the national real estate market on five key real estate data points: (1.) Median Sale Price, (2.) Available Listings, (3.) Sales Volume, (4.) Median Rental Rate, and (5.) Average Market Vacancy Rate.
This report’s data is primarily sourced through two sources: Midwest Real Estate Data and FRED Economic Data. These sources, while deemed accurate, generally reflect macro trends and do not account for individual property strengths or weaknesses. To gain a better understanding of an individual parcel, please consult with a licensed professional to form an accurate opinion. To see how Team Sobiko’s Realtors® may assist you, please visit our underwriting, commercial or residential service pages.
Median Sale Price Analysis
National Median Sale Price - $476,700, as of the Fourth Quarter, 2022.
Illinois Median Sale Price - $290,000, as of the Fourth Quarter, 2022. (And sticky @ $290,000 for the first quarter of 2023.)
Analysis
These prices are deemed to reflect actual close amounts, verses asking price. The national trend continues to inch higher while Illinois looks to have leveled off, for now.
Several factors impact pricing, where the “price” can be thought of as an emergent quality of a venn diagram that overlaps: (1) amount of available inventory, (2) cost of financing, (3) consumer perception, (4) general ability & motivation.
As of this report, inventories of real estate for sale are at historic lows, specifically for Illinois. Financing, while not at historic highs, are at their highest on a relative basis to what the United States economy has been running on for “recent history”. Consumer perception reflects the high cost of financing, where potential buyers will rather wait than purchase now. Similarly, sellers who would consider moving, are not, because they too, are subject to high refinancing costs. This results in an overall lack of motivation to transact, which is corroborated in the listing counts and transaction volumes shown below.
The take-away Team Sobiko is concluding is that the market is riding a razor’s edge where pricing is currently remaining sticky due to low inventory, fueled by an ever-growing national housing shortage, exponentially exaggerated at the present due to the high cost of financing and general sentiment of a recession, which is resulting in less people in a position to capitalize on economic opportunities or the pursuit of life goals, such as growing a family, which are primary drivers of home sales.
Listing/Inventory Count Analysis
National Listing Count - 562,565 as of March, 2023
Illinois Listing Count - 203,617 as of March, 2023
Analysis
Listings are trending at historic lows nationally and are at historic lows in Illinois.
As noted above, the availability of inventory is largely reflected in a person’s willingness to list and current economic times are not favorable to either sellers or buyers because most people who sell, do in fact, have to move somewhere, not necessarily purchase. However, most sellers do want to remain owners, so if financing is expensive, people who are capable of freely moving, do not. This results in an environment where listings are mainly the result of need-motivated transactions, rather than want-motivated transactions.
Sales-Volume Analysis
National Dollar Volume - 4,580,000 as of February, 2023
Illinois Sales Volume - 136,261 as of February, 2023.
Analysis
Transaction volume is starting to increase nationally, recovering from historic lows. Illinois transactions are “crashing”, using this loosley, to below that of pre-pandemic levels.
It is important to note that the national data is only tracked from February 2022. If the national trend is generally in-line with Illinois, this would imply that transactions were hovering at a “stable” point, prior to the pandemic, to then explode during the pandemic because of the near-zero interest rates, and are now falling below the pre-pandemic levels because interest rates have risen to to a current range of 6 percent to 7 percent, where pre-pandemic it was around 3.5 percent to 5 percent.
Rental Rate Analysis
National Rental Consumer Price Index - 391.141 as of February, 2023
Illinois Rental Consumer Price Index - 393.765 as of February, 2023
Analysis
The rental price index continues to climb nationally and locally. This sentiment is not new for the United States, as housing continues to remain short of need.
It is important to note that this generally reflects data as of January 2023 and macro-economic trends are still settling. As of March 2023, rental rates are predicted to remain flat, implying that owners and managers should focus on tenant-retention strategies, supported with a stronger marketing effort for 2023.
Vacancy Rate Analysis
National Rental Vacancy Rate - 5.8% as of the Fourth Quarter, 2022.
Illinois Rental Vacancy Rate - 7.4% as of the Fourth Quarter, 2022.
Analysis
As noted above, inventories are at current lows, this is also true in the rental market.
For context, we would consider a “historically low” rate to be in the 3 percent to 4 percent range, which is the case in urban areas, such as Chicago and even lower, we would say “critically low” in other major metropolitan areas.
Summary
As of this report, Team Sobiko’s opinion is that real estate is on a path to “correct”, which is a term that generally implies price drops. The severity of the correction is still to be determined as some economic factors have not yet started to play out, specifically the severity of mid-bank liquidity and the impact of commercial ballooning loans, which are largely held by mid-sized banks.
While this report focuses on residential real estate trends, it is important to note that commercial real estate is facing a potential crisis in loan defaults. This is why our sentiment is that the market is riding a “razor’s edge” and it is imperative that regulators tow the line just right, because just like when the Evergreen blocked the Suez Canal, one wrong economic lever-pull and we are facing some serious economic impacts.
If anything, it is a time to work closer together with your professional partners and local regulators because the only way we navigate a tough economy, without making it tougher, is by working together and with a little more risk-sense. Any individual parcel is going to have its specific challenges or advantages and, as real estate professionals, recognize that a good property is almost certainly a good investment, despite the economic headwinds, because you are fundamentally investing in quality, value-producing & value-retaining, USA soil. The above report is largely based on macro-economic trends and does not account for the potential of an individual parcel or property. Only when working with the right team of professionals, will the various factors that are currently playing out, be more holistically considered.
In short, now is the time for quality decisions versus quantity of decisions.
