The Chicago housing market rang in the new year with the title of the “weakest US housing market of 2019” according to a report by Realtor.com. And being dubbed a “loser” in the race to become the location for Amazon HQ2 seemed like another hard blow to the Chicago housing market. Unfortunately, titles like these can haunt a real estate market all year, causing current and future investors to wonder if Chicago real estate is a good investment in 2019.
But local experts have weighed in and we have taken a look at the Chicago housing market data from Mashvisor in order to determine if 2019 will really be as bleak as the headlines say.
The Realtor Report
The Realtor report was released in November of 2018 and comprised of US housing market predictions for 2019. Here is a quick rundown of what the source had to say about the US real estate market’s future:
- 2019 will be a tough year for homebuyers and sellers
- Housing inventory will see less than a 7% increase
- Existing home sales will decrease by 2%
- Single-family housing starts will go up 8%
- Homeownership rate will be 64.4%
- Mortgage rates (30-year fixed) will be around 5.3% throughout 2019, reaching 5.5% towards the end of the year
- The 2019 US housing market will be a seller’s market, but not a very hot one
Overall, Realtor’s US housing market forecast for 2019 wasn’t overly positive but not overly negative either. It mostly showed that the costs of homeownership across the nation are increasing and buyers might be priced out of many markets. With the new tax plan favoring renters and taking away homeownership incentives, many will be hesitant to buy a home this year and sales will drop.
As housing inventory increases slightly and fewer property buyers are in the market, sellers won’t get the high-profit margins they have been enjoying for the last few years. Although they will still profit, according to the report, if they understand how the market is changing and adjust their strategies.
And, when it came to the Chicago-Naperville-Elgin region, here were the stats from the report:
Sales Growth: -7.4%
Price Growth: -1.9%
Among the 100 metros the report showcased, the Chicago housing market fell to last place.
Key Takeaways for Chicago Real Estate Investors
As a real estate investor, you may have seen the title of “weakest housing market of 2019” and thought to stay away from the Chicago real estate market this year or even get rid of your current investment property.
However, what you’ll notice is the report focuses on homeownership as opposed to investing in Chicago real estate. For instance, tax incentives remain for owning a Chicago real estate investment under the new tax plan.
Not only that but with homeownership out of the question for many Chicago residents, rental demand should remain stable or increase. So if you buy a Chicago real estate investment to use as a rental property, you could still benefit in this market.
And as Realtor forecasts that there will be less competition in the market and a drop in sales, this means you will be less likely to face bidding wars over the investment property you’re eyeing. In fact, Zillow reports that Chicago is a buyer’s market.
While the price growth was reported to be negative for the Chicago housing market 2019, Zillow currently reports that property values in the market will see an increase of 4.3%. The small drop of 1.6% is nothing troubling for the real estate market as a whole, according to local experts, especially as value is set to increase.
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Still, even with these positive takeaways for owning a Chicago real estate investment, let’s continue to explore the city’s housing market to understand what it will look like in 2019.
The Chicago Housing Market 2019: What Other Experts Had to Say
It’s true we can’t call the Chicago housing market the best place to invest in real estate. However, local experts are saying there isn’t anything to worry about. For one, the US housing market as a whole will see similar trends to the Chicago market when it comes to a slight drop in sales.
And many believe that the drop in numbers is skewed somewhat as we compare the housing market data to that of 2018 and 2017- both great years of growth for the real estate market. Because the market witnessed so many years of accelerated growth after the market crash, it was only a matter of time before we started to see things even out- this “downturn” we are witnessing now.
Matt Laricy, a top real estate agent in the Chicago housing market, said: “We’re going to cool off, but it’s not the end of the world. We just need to get to a normal market.”
The vice president of industry development at Zillow, Curt Beardsley, predicts that the Chicago housing market 2019 will actually perform better than it did in 2018. At the Realtors event, he said:
“We actually think there’s going to be some more growth in next year than there was in the previous year, partially because of the constraints on inventory. A little bit more of it is going to open up. That will actually drive things better.”
Is Chicago a Good Place to Invest in Real Estate in 2019?
We’ve heard what the experts on both sides- national and local- had to say about the Chicago housing market. Let’s take a look at a few key trends in the city that affect investment properties to determine if there are any potential opportunities here.
A major issue that real estate investors will have to keep an eye on this year is the population loss in the Chicago housing market. The state of Illinois as a whole is dealing with outmigration and Chicago was one of the only larger metros in the US to experience significant population loss last year.
The problem lies in the fact that those leaving the housing market are part of the labor force which is why it is cause for concern. However, according to the PwC’s annual report on US real estate trends, Chicago has “a higher population percentage in the prime worker years of 25 to 44 than the United States as a whole,” along with the Midwestern cities of Columbus, Indianapolis, and Madison. So, while this labor force is leaving the state, it may be some time before the effects are fully felt in the Chicago real estate market.
Despite population losses, the same report says that the Chicago housing market is still an attractive gateway market for real estate investment. This is in part due to the fact that many other gateway markets are too expensive.
Economic Growth and the P33 Initiative
Even though some of the workforce is leaving the state, there is job growth in the Chicago housing market. In November 2018, the job market in the Chicago-Naperville-Elgin region saw an increase of 1% from the previous year. This was only slightly below the national job growth of 1.6%.
And while there were high hopes for what Amazon HQ2 would have done for the local economy, job growth, and the housing market, local officials are still determined to turn things around for the city. This is evident in the announcement of the P33 Initiative. The goal of this initiative, which was announced last October, is to make Chicago the center for technology’s next generation of creators. It hopes to bring leaders in technology, business, education, and civic groups together in order to provide new opportunities in a variety of industries for the residents across the city.
Of course, if the initiative is a success, the kind of job growth it will bring will ideally drive population growth. With that will come a newly sparked demand for Chicago houses for sale and even better investment opportunities.
With housing supply creeping up all over the nation and home sales dropping slightly, there will be some improvement on the inventory crisis of 2018. Certain areas in the Chicago housing market 2019 are forecast to see even more investment properties for sale on the market than other locations.
Most of this housing supply will be focused in high-cost neighborhoods in Chicago like Downtown. Specifically, a lot of the new construction will be in multi-family homes and condo units. While this may be an issue for first-time homebuyers and the like, it’s not much of an issue for a real estate investor who can afford such Chicago real estate investments. Even better, this means that with more supply and demand dropping slightly from other buyers, competition is set to drop putting more pressure on sellers. This should make it easier for real estate investors to find better deals than last year.
Rather look for affordable real estate in Chicago? Read: 2 New Ways to Find Cheap Investment Property for Sale in 2019
Best Neighborhoods in Chicago to Invest in Real Estate in 2019
Another issue local experts had with the Realtor report was that, when looking at submarkets in Chicago, the same stats don’t apply. There are plenty of promising neighborhoods in the Chicago housing market where both homebuyers and real estate investors can find opportunities.
For example, Laricy said that his housing market predictions for 2019 show that Downtown Chicago will see a boost in sales of 1.5% from 2018. There are also a few South Side neighborhoods where Opportunity Zones are set to improve the market such as Bronzeville and South Shore. In fact, according to Mashvisor’s real estate market data, the average return on investment for these neighborhoods is good for long-term rental properties.
- Median Property Price: $258,760
- Traditional Monthly Rental Income: $1,869
- Traditional Cash on Cash Return: 2%
- Median Property Price: $179,591
- Traditional Monthly Rental Income: $1,214
- Traditional Cash on Cash Return: 2%
And while these neighborhoods present some good investment opportunities, here are the best neighborhoods in Chicago to invest in long-term rental properties for high returns:
- Median Property Price: $216,938
- Traditional Monthly Rental Income: $1,408
- Traditional Cash on Cash Return: 5%
- Median Property Price: $147,660
- Traditional Monthly Rental Income: $1,107
- Traditional Cash on Cash Return: 4%
East Garfield Park
- Median Property Price: $129,963
- Traditional Monthly Rental Income: $1,374
- Traditional Cash on Cash Return: 4%
- Median Property Price: $186,979
- Traditional Monthly Rental Income: $1,128
- Traditional Cash on Cash Return: 3%
Click here to start looking for the best investment property in Chicago now.
The Final Verdict
Buying investment property in Chicago can make for a good real estate investment. Things aren’t as black and white as the label the city was given at the end of last year. However, it’s still smart to invest with caution and make sure you find the best investment property in Chicago in a growing neighborhood. This is best done with Mashvisor. Click here to start a 14-day free trial to ensure you find the best Chicago investment properties.