Ron Vlasic, 56, was one of 19 bidders on a $315,000, three-bedroom house in Des Plaines in February.
He started by offering $1,000 over the asking price. A few days later, after the property hosted a busy open house, he raised his cash offer to $18,000 over asking price.
For Vlasic, who had previously made three unsuccessful offers on other houses, the fourth time was the charm. The deal closed and his daughter, her partner and their two kids now occupy the Des Plaines home, which is 5 miles from where Vlasic lives.
“We made all cash offers on these homes and were immediately outbid by other buyers,” said Vlasic, who works for a national company that owns and operates golf courses and country clubs.
Spring is typically a time when the number of real estate transactions starts to pick up again after the slower winter months. But this year, Chicago-area buyers such as Vlasic are facing historically low levels of available homes as more sellers stay on the sidelines because of high mortgage rates and fears that the tight supply of homes might make it difficult for them to find another place to live.
Laura Ellis, chief strategy officer and president of residential sales at Baird & Warner, said high interest rates are grabbing all the attention when the bigger issue in the Chicagoland market is not having enough supply to meet demand.
“The spring market is stalling, but it’s because we don’t have enough properties to sell,” Ellis said. “That may moderate as more listings come on the market, but the problem that we have is that sellers are afraid to put their homes on the market if they need to buy another house because they (worry) they are not going to find (another home).”
The inventory of homes for sale in the city is down about 18% year-over-year, according to February data from Illinois Realtors, a trade association for real estate agents. The year-over-year decline in inventory is about 14% for Cook County.
In the Chicago metro area, total inventory levels in February show a five-year low since Zillow began collecting data in January 2018.
Nationally, housing market trends are being shaped by “seasonal factors and unusually high mortgage rate volatility,” Orphe Divounguy, senior economist for Zillow, said in a statement.
“Buyers are out in force, but sellers — unwilling to trade a low mortgage rate for today’s higher rate — are staying on the sidelines and that means inventory remains lower than normal for this time of year,” Divounguy said.
Higher mortgage rates mean buyers can afford less. Freddie Mac had national rates for a 30-year fixed-rate mortgage at 6.42% as of March 23, down from the 7.08% peak on Nov. 10. A typical U.S. homebuyer’s monthly mortgage payment averaged $2,518 for the four-week period ending March 19, according to data from Redfin. This is a 19% increase, or $410, from a year ago.
Lisa Foster, senior real estate broker with @properties/Christie’s International Real Estate, is seeing these affordability issues firsthand in the Chicago area.
“People with median incomes are having a tough time with the down payment,” Foster said. “They are finding it harder to save with everything being so expensive.”
The area median incomes in Chicago and Cook County were $65,781 and $72,121, respectively, according to 2021 U.S. Census Bureau data. Some of what is eating into potential homeowners’ income is the cost of rent in the Chicago area, an expense that has increased greatly over the last few years.
The median sales price in the city and the county are in the low $300,000s and upper $200,000s, respectively, in February, with prices slightly up month-over-month and slightly down year-over-year, according to Illinois Realtors.
Nationally, the median existing-home sales price fell for the first time in 11 years in February, dropping 0.2% to $363,000, according to the National Association of Realtors. Prices waned in the Northeast and West, with prices climbing in the Midwest and South.
Rockie Bonney, 53, a Marine Corps veteran and U.S. Postal Service letter carrier, is looking for a $350,000 to $400,000, four-bedroom home in the Homewood or Flossmoor areas of the south suburbs for his wife, teenage son and two grandchildren.
Bonney has lost out on two homes so far, with one going $10,000 over what he offered and the other going $40,000 over.
“The home search experience has been a roller coaster, up and down,” said Bonney, who is using a VA home loan, which allows qualified buyers to purchase without a down payment and to have a lower credit score than needed for a conventional loan, according to Veterans United Home Loans.
As of February, year-over-year sales in the city, Cook County and Illinois are down about 37%, 34% and 25%, respectively, according to Illinois Realtors. Compared to January sale levels, February sales are up about 10.5% for both the city and the state.
Nationally, existing-home sales, which excludes the sales of new homes, jumped 14.5% in February — the largest monthly percentage spike since July 2020 — breaking a yearlong streak of declines, according to data from the National Association of Realtors.
James Salazar, director of growth and development at Baird & Warner’s Berwyn office, said he is seeing greater interest in two- to four-unit buildings, in part because of investors but also because the multigenerational living concept is becoming more popular again in the Latino community.
Salazar, like his colleague Ellis, said there aren’t enough properties available.
“We cannot keep up with the demand,” Salazar said.
A recent study by DePaul University’s Institute for Housing Studies shows that two- to four-unit properties — buildings that tend to be lower in cost — are more commonly purchased by Black and Latino households. That type of housing stock has been threatened in recent years due to foreclosures and gentrification, according to the study.
One type of housing stock that isn’t facing an inventory shortage is the downtown condo.
Ellis of Baird & Warner said this is a “hangover from COVID,” as people fled population-dense areas over upticks in crime.
John Roeger, 54, lives in the north suburbs of Cook County with his wife and is looking to buy a downtown condo now that his two children are in college.
Roeger and his wife recently toured Cirrus Condominiums — a building with one- to four-bedroom units ranging in price from $500,000 to $5.3 million — in Lakeshore East, the neighborhood they zeroed in on for their next place.
“I wouldn’t have thought of this area before looking,” Roeger said, adding that a big draw is that he can walk to work and access nearby trails for running.
He described himself as “casually” participating in the home search process, looking to buy by the time his first child graduates next spring.
Cirrus began selling its 350 condos in March 2022. The developer declined to comment on how many units are still available.
Andrew Hanson, interim chair of the department of real estate at the University of Illinois at Chicago, said it will soon become clearer how the housing market is going to handle higher mortgage rates.
“I really think this spring and into this summer is going to be a test run at what the market looks like when we don’t think interest rates are going to go back down, when they are pretty stable in that 6% to 7% range,” Hansen said.
As the ground starts to thaw and flowers bloom, Ellis is waiting for more homes to come on the market.
“We are hoping and praying (that more inventory will become available) because we have a lot of people who need houses,” Ellis said.
Bonney, the resident looking to buy in the south suburbs, is one of those who hope to find a house soon.
“It is just the waiting game,” Bonney said. “It has been fun and disappointing at the same time.”
