What do the remaining months of 2021 have in store for the Chicago real estate market — and how can brokers prepare themselves for the rest of the year?
Looking at current trends, it is clear that there is an enormous amount of opportunity in the marketplace going into the fall. Agents who commit to understanding the market and putting in the work are in a prime position to set themselves up for a strong showing through the rest of the year, while also setting up for a strong beginning of 2022.
Let’s dig into some important trends that will shape the market through the rest of the year and beyond:
Is the Market Slowing Down?
I’ve been hearing a few people around the industry say that the market appears to be slowing down, with things getting a bit quieter compared to the earlier months of 2021. So, are we really entering a slowdown? That’s not what the data indicates. Looking back, June and July of 2020 were the two busiest contract months of the year, and June 2021 contracts were still higher than June 2020, and July 2021 contracts were only slightly down (but up significantly from July 2019). We have seen a more normalized distribution of monthly sales, though still following a record setting annualized pace.
A bit less market activity is typical for the summer months, particularly in July and August. After all, school is out, and many families are on vacation. So far, the numbers indicate that month-to-month declines are far more likely to be due to seasonal impact, rather than a marketwide slowdown.
And with that being said, we’re still at such a record pace for 2021 that the market is doing very, very well, by just about every benchmark — which means there continues to be a lot of opportunity.
Location, Location, Location: What’s Going On Across the North Side of Chicago?
Moving forward, I’m going to focus on the areas where most of our agents at the Baird & Warner – Lincoln Park office live and work — the North and Northwest Sides of Chicago. Generally, our office divides Chicago’s North Side into three sections: Downtown 1 is the central downtown area, including the Loop, Gold Coast, and Streetville. Downtown 2 is the surrounding area, including neighborhoods such as Lincoln Park, the West Loop, Wicker Park, West Town, North Center, and Bucktown. Downtown 3 comprises the areas furthest to the north and west, including Logan Square, Hermosa, Edgewater, Rogers Park, and Lincolnwood, among others.
As an office, we’ve been watching all of these areas very closely throughout COVID. Over the last year, the market that buyers and sellers experience is highly dependent on where you are, and what kind of property that you’re looking to buy or sell.
So, how is the market faring in these areas? The Downtown 1 area – including the Gold Coast, the Loop, and Streeterville — was hit the hardest during the pandemic. This area saw the bulk of the protests and social unrest during 2020. And with lots of high rises and smaller units with no outdoor space.the property types in this area were largely out of favor with what buyers wanted during COVID. People also spent less time in the Loop for work, and realized that they could live further out from the city center.
As a result, we saw a large number of people leaving this area, contributing to a large amount of unsold inventory. The good news is that we are now starting to see inventory levels come down. At the time I’m writing this, we’re seeing about 9.2 months’ supply of inventory in this area, whereas earlier in the year, we were consistently at 12+ months’ supply. Meanwhile, more homes went under contract in this area in June of 2021 than during the same period in 2020.
While we can’t know exactly what’s in store, with people getting vaccinated and offices opening up, there’s more reason for people to start coming back to the city. Plus, savvy buyers may have also realized that there’s a great opportunity to acquire an investment property in this area while there is so much inventory — which means more leverage to negotiate a better price.
As for the other areas, we continue to see extremely high demand and low inventory. With just over two months’ supply of inventory in both the Downtown 2 and Downtown 3 marketplaces, these neighborhoods are experiencing a seller’s market.
The luxury market has also been faring better so far in 2021, with the number of properties going under contract in the price range of $1M and up increasing significantly year-over-year, while months’ supply of inventory for luxury properties has been coming down fairly dramatically. It’s great to see movement in the luxury market, which was hit hard by the pandemic and largely slowed down throughout the last year.
So, what can we take away moving forward? While supply is still low in many neighborhoods, the frenetic pace of the spring market has calmed down and buyers that were turned off by that pace should revisit the opportunities in the second half of 2021.
Our 2021 market also reinforces the importance of dispelling myths and helping your clients understand their local market. As a broker, there are a lot of people out there on the buyside and sellside that need help developing a sound real estate strategy to maximize the opportunity in this market. As brokers, we need to focus on educating ourselves and our clients on current market conditions so that our buyers and sellers feel comfortable making informed decisions.
Market Supply and Demand Considerations
As is always the case, the market ultimately comes down to supply and demand. Broadly speaking, inventory levels remain tight across our neighborhoods and around the country at large, while demand grows due to a convergence of several key factors.
In terms of supply, one of the issues that is having an impact is the fact that new construction is still lagging. New construction is the primary source of new supply in the market. With materials and labor shortages and stop-work orders as a result of the pandemic, homebuilders are still not generating enough new inventory to meet demand, putting even more pressure on the limited amounts of resale inventory available.
And while major talking points in the industry tend to focus on supply, I also think that it is extremely important to consider how the demand curve has shifted — to which I think there are two big factors at play.
On the one hand, the experiences of the pandemic are driving a positive sentiment toward ownership, and we’re seeing buyers who are very motivated to look for more indoor and outdoor space, home offices, and other perks as a result of the events of 2020.
The other big push is being driven by demographics. When it comes to housing demand, demographics is destiny. When you look at U.S. census data on the 10 most common ages of Americans, we see that every single age in the top 10 of 2020 is between 25 and 35. Census data also shows a big bump in the 30-39 cohort over the last decade.
This all reaffirms that Millennials are entering the years when they experience peak life changes, such as getting married and having kids. This is also the peak life decade for buying a home. With so much of our population within this prime homebuying cohort, demand should only be projected to grow in the years to come.
Summing It Up
In summary, here are a few key points to consider for the rest of 2021 and into 2022:
- Is the market “slow?” It’s all about perspective. June 2021 was the best June for units under contract ever (with data going back to 2008). When compared to Feb.-May of 2021, it simply felt slower because our definition of normal has shifted given the extremely fast pace of the market.
- Downtown market activity is picking up, but pricing properly remains very important. It’s not the time to test a price.
- The luxury market is rebounding nicely, and people with money generally know where to invest it. Real estate has consistently been a very good option, and Chicago continues to be an attractive luxury market.
- The supply challenge will continue with limited new construction, as well as more condo deconversions. The demand curve may be here to stay due to shifting age brackets, and potentially accelerated by the pandemic.
In short, we’re expecting the fall 2021 market to continue to be very busy.
Real estate remains a great industry, and there’s a significant amount of opportunity for agents here in the Chicago market. Now is the time to dig in. If you focus on developing a plan and looking for emerging opportunities instead of focusing on the challenges, you will grow your business — and the current market is set up to support that.
Interested in learning more about how Baird & Warner Lincoln Park can help you move forward in your real estate business in 2021 and beyond? 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!