The Power Is Now Research Team


The housing market in Chicago mostly aligns with the overall U.S. housing trends, but it’s still lagging behind the rest of the country’s post-recession recovery. In the widespread Chicago metro, inventory is high, creating a buyer’s market where sellers are not earning ideal returns on their properties. Conversely, in Chicago’s city limits, it’s a hot sellers’ market. Few homes are listed for sale causing home shoppers to compete with each other, driving up prices. Although the current states of these two markets are drastically different, home values are nearly equivalent in the metro ($187,100), city ($182,100) and even the across the country ($178,700).

Unlike the rest of nation, home values aren’t rising as quickly in Chicago. In the last year, national home values rose 4.9 percent, which is the slowest rate of growth in the past several months. Home values in the Chicago metro only increased by 2.6 percent annually, while city values actually decreased by 5 percent. A sustainable rate of annual appreciation is typically 3 to 5 percent. Therefore, the Chicago metro isn’t far from healthy, but home values in the city are struggling, which is leading to more homes with negative equity.

Housing Crises Effect

In 2007, at the height of the housing bubble, home values were at their peaks before plummeting steadily to their lowest values in 2012. Across the country, home values fell more than 20 percent but recovered in just three years to 9.3 percent below the pre-recession peak. Unfortunately, Chicago home values are still 23.1 percent below 2007 peaks, marking a far slower rebound.

When home values declined, many homeowners fell underwater on their mortgages, meaning they owed more on their mortgages than their properties were worth. Imagine buying a home at the top of the market for $230,000, but now it’s only worth $187,000 and you’re still paying that full mortgage each month. The only options to escape that payment are letting the home go into foreclosure or short selling if your lender agrees, both deteriorating your credit, or selling the property at the current price and bringing the difference in cash to closing. None of these options are favorable for underwater homeowners, so many continue paying their mortgages in hopes that appreciation will bring them out of negative equity.

In the Chicago metro, a quarter of homeowners are underwater on their mortgages, 25.1 percent. In just the city limits, even more homeowners are in negative equity, 31.5 percent. When compared to the national rate of 16.9 percent, it’s clear that Chicago is struggling to recoup. What’s even more distressing is the percent by which these homeowners are underwater – 49 percent in Chicago versus 38 percent in the U.S. These numbers suggest Chicago homeowners are deeply underwater, owing an average of $83,938 to escape negative equity.

Distressed Properties in Los Angeles

Fortunately, negative equity does not mean homeowners will default on their loans. Mortgage delinquency is the first step toward foreclosure and only a small percentage of owners are currently late on their payments in the greater Chicago metro (7.3 percent) and in the city (6.3 percent). For comparison, mortgage delinquency across the nation is at the same rate (6.3 percent), suggesting Chicago owners are committed to the eventual recovery of home values.

Rents in Los Angeles

When homeowners foreclose or sell they transition into the rental market along with all the other new renters. As demand for rental units increases, supply shrinks, competition sets in and prices rise. Nationwide, wages are not rising while rents are skyrocketing, making rents more unaffordable than ever before. However, Chicago is keeping up with population growth and rental demand, effectively quashing the newest housing crises – rental unaffordability.

According to Zillow which tracked annual rental change throughout the past year for the top 35 major metros in the U.S., Chicago (-0.5 percent) and Minneapolis-St. Paul (-0.3 percent) were the only two metros that did not increase in rents. For comparison, rent in San Francisco rose a shocking 14.9 percent annually. In Chicago, renters pay an average of 31.1 percent of their monthly income on rent – right on par with the nationwide 30.1 percent.

Housing Predictions

While Chicago’s rental market is performing better than most other U.S. metros, homeowners are trapped deeper underwater than in other metros. This predicament is not forecasted to improve within the next year. Owners in the city are expected to experience additional home value depreciation throughout 2015 – down another 0.7 percent. Values across the Chicago metro are only slightly better situated with anticipated 0.9 percent appreciation. National home values are also predicted to grow slowly at 2.6 percent, but it’s still stronger than values in Chicago.

Long-term owners still have time to wait out the slow recovery, while relocating owners may have to assume serious financial setbacks. Finding a rental in Chicago should continue to be manageable as property prices are low enough for builders to raise more units for newcomers and make profits off reasonable rents.