2020 and 2021 have been truly unprecedented years in the real estate business. Major shifts to how we live, play, and work have affected all of us, and while some things will return to normal, it’s clear that our lives will forever be changed by the lessons we’ve learned over that time. In the real estate industry, the last two years have made it clear how important it is for those who work in this business to adapt, pivot, and see these challenges as opportunities — opportunities to build our businesses in a way that allows them to thrive in any conditions.
As we wind down the year, now is the time to look ahead — and start setting down goals and plans for 2022 and beyond.
Whether you’re an experienced agent doing some yearly business planning, or you’re considering whether or not now is a good time to start pursuing a Chicago real estate career, it’s important to know what’s going on in the market, and what we might expect to happen throughout 2022.
Looking Back On 2021
2021, much like 2020 before it, was a year filled with both unprecedented opportunities and significant challenges. Historically low interest rates, combined with supply chain challenges that taxed new home construction, led to a red-hot market in the first half of the year. In January and February, the Chicagoland area experienced an 18% increase in sales in the nine county metro area to accompany a 15% increase in the median sales price, from $235,000 to $270,000. Driven by low inventory and high demand, the market grew at nearly unprecedented levels, before growth slowed somewhat seasonally as we headed into the fall and winter months.
The National Real Estate Market Is Cooling
Nationally, many experts expect continuing inflation to drive slightly higher mortgage interest rates, which may cool a hot national market. Over the past two years, the Federal government has set historically low federal interest rates, which helped to drive mortgage rates lower in order to incentivize borrowing. This strategy was undeniably effective. These historically low mortgage rates, combined with shifting demographics and a wave of millennial buyers entering the market for the first time, has driven red-hot homebuying markets nationwide, and led to an influx of speculators and home flippers, whose goal was to hold homes in anticipation of further market growth. However, recent inflation concerns have changed the Fed’s incentives dramatically. Most experts agree that higher interest rates are likely to create slower growth. On the high end of predictions, the Mortgage Bankers Association predicts mortgage interest rates will climb as high as four percent by the end of 2022, while other experts predict that rates will land somewhere in the 3.6 percent range.
Higher interest rates will lead to a decrease in buyer purchasing power, with home seekers looking to maximize their investment. Homes will stay on the market a bit longer, and buyers will be more selective, driving slower growth. Instead of the 10-12 percent gains seen over the past few years, this cooling trend could lead to price increases in the three to five percent range.
This cooling trend could be a win for both buyers and sellers. With speculators discouraged from entering the market, both sellers and buyers will likely have more time to make decisions, which means that neither party is likely to make a decision they regret over time. However, with more choices, it will be more important than ever for buyers and sellers to have an agent in their corner whom they can trust. Evaluating the relative merits of different properties, and understanding the ins and outs of the market, is going to be more important than ever, creating a wealth of opportunities for knowledgeable, savvy agents.
What Will 2022 Bring For The Chicagoland Real Estate Market?
The Chicagoland real estate market is known for bucking national trends, and 2022 is likely to be no exception. In 2021, supply chain issues plagued the construction of new homes in the growing Chicago area market, leading to an uneven market over the course of the year. Builders who could not acquire supply pushed back construction, with many reporting missing sales targets on new construction. AT this point, there is not a clear path to a dramatic change in available inventory and this will continue to be a story in 2022.
In addition, the demand of younger, first-time buyers is likely to continue to outstrip the supply of entry-level homes. As a desirable city with prices that are attractive to younger buyers, Chicago is likely to feel this crunch acutely. With new residents coming to the city every day, it is likely that entry-level homes, particularly within the city, will continue to enjoy a hot market.
One area in which Chicago won’t deviate from the national market will be in interest rate hikes. These increases in mortgage loan interest rates will likely affect Chicagoland homeseekers, reducing purchasing power and leading many to consider smaller, more affordable homes and homes in neighborhoods that are off the beaten path. That said, the recent increase in the conventional loan limit to $647,200 should help out the Chicago market and minimize any impact of increased mortgage rates.
As always, Chicagoland real estate can vary widely by neighborhood. Residents who moved away from the downtown area amid pandemic fears may start returning as the wider distribution of vaccines makes urban living more attractive again and companies start their return to work plans. The downtown market in particular saw a dramatic increase in written contracts during the 4th quarter of 2021.
Lincoln Park Area Predictions
Despite uncertainty and a bit of chaos in the market, Lincoln Park’s home prices and trends remained relatively stable and unaffected by the difficulty plaguing much of the market. The median sales price in Lincoln Park increased 1.7% in 2021, and median market time was down 16% to 32 days. That trend of stability and slow growth will likely continue in 2022, with the area’s buyers taking the time to look for the perfect fit. Expertise will continue to be a differentiator for the agents and brokers in the region, and the support and mentorship of established partners will continue to be critical for agents at all experience levels.
Let’s Talk About The Big Picture
Overall I would say I’m very optimistic about how things stand in Chicago, and I think 2022 will continue to build on the gains of 2021 with a more stable but still robust market.
The other big piece of it? In a more complex market, both buyers and sellers are going to need a savvy real estate broker on their side to help them develop an agile and realistic real estate strategy. The buyers and sellers who have an agent who can actually help them put a strategy in place are the ones that are going to be the most successful in reaching their goals.
Interested in learning more about how Baird & Warner Lincoln Park can help you move forward in your real estate business in 2022? I always welcome the opportunity to discuss your real estate career. Whether you are considering a career change or looking for a new partner in your existing business, I truly look forward to connecting!