2020 was an unusual year, to say the least. In the real estate industry, this past year really reinforced the importance of being able to adapt and pivot to new challenges, in order to keep business moving forward.
As we wind down the year, now is the time to look ahead — and start setting down goals and plans for 2021 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 2021.
Like any marketplace, Chicago’s housing market is driven by two primary forces — supply and demand. Let’s take a look at where we expect those factors to be as we head into 2021:
Looking Back on the 2020 Market
It goes without saying that 2020 was one of the more interesting years in terms of analyzing the real estate market. In particular, as we all watched the chain of events that followed after the pandemic hit the United States around March.
When the pandemic hit in March, things came to a halt very quickly. That slowdown lasted through April. Those were scary and unpredictable times. What was encouraging to see was how quickly things reactivated in May.
At this point, as we head into 2021, we can expect more predictability — largely because we just simply know more about the virus and its impact. We understand all of the different dynamics at play, and how they have influenced the market so far.
Whatever’s in store for the future, I expect that all of us in the real estate industry will be able to do a much better job of anticipating what’s going to happen, now that we’ve had some time to watch, learn, and adjust.
Demand In the Chicago Real Estate Market: Should We Expect a Surge in 2021?
When the pandemic hit in spring 2020 there was, understandably, a lot of fear and concern. One of the areas where we saw that play out the most was with mortgage lenders, who quickly started managing risk and making it harder for borrowers to access money.
As higher unemployment and the other economic impacts of the pandemic started to ripple out, most lenders put in some new restrictions; for example, some banks stopped doing jumbo loans. This tightening was designed to forestall an increase in delinquencies and forbearances, and protect the lenders from getting stuck holding non-performing loans.
Fortunately, as things went on, the situation got more predictable — and financial institutions like predictability. So, access to that money started becoming more readily available again. That helps elevate demand as a whole.
More recently, in November 2020 the Federal Housing Finance Agency (FHFA) increased the loan limits for conventional loans from $510,400 up to $548,250 for 2021. That’s a big deal for a lot of reasons, especially for a market like Chicago. Primarily, conventional loans are generally said to feature the “best rates” for buyers — which means that increasing the maximum conforming loan limit can significantly increase a borrower’s purchasing power.
As an example? On the day I’m writing this, the interest rate for a 30-year fixed rate loan is about 2.75%. If you were to get a $500,000 loan today, that would likely put your monthly payment for principal and interest just over $2000. That’s amazing — and could easily help motivate a lot of buyers to enter the market, while interest rates continue to remain near historic lows.
The second big piece influencing demand is consumer confidence. Personally, I think confidence is increasing and people are generally feeling better about what’s happening in the market as we head into 2021.
For one thing, we have the presidential election behind us. Whatever your political views, election season is usually a volatile time no matter who is running for the White House — and that uncertainty can have an impact on the housing market.
Meanwhile, on the day that I’m writing this, the first doses of the COVID vaccines are beginning to be delivered around the country. This has caused a stock market rally, one which will most likely be sustained if this does indeed mark the early stages of a full nationwide recovery. This will likely mean that people’s 401Ks and investment accounts are going to be looking a lot more stable, which will inspire more activity in the housing market.
The final piece powering demand? In my capacity as a real estate professional, one thing that I definitely know to be true is that people have spent more time evaluating their homes this year than ever before! People have had a lot of time to focus on what they don’t like in their current spaces, and start thinking up wish lists for their future homes. 2020 was a year in which more people than ever thought about the idea of owning their own home, and really considered the importance of homeownership in a new way.
On the demand side of things, all of those pieces line up to forecast what I would expect to be a very strong 2021.
Supply In the Chicago Real Estate Market: How Will Inventory Shape the Market in 2021?
Chicago is often called a city of neighborhoods. Housing market trends in our area can really vary greatly from neighborhood to neighborhood, or even block to block.
On the supply side of things, I do expect it to be a tale of two marketplaces in 2021.
One marketplace is seeing very tight levels of supply with lots of demand — namely, surrounding Chicago neighborhoods that feature more single-family homes, such as North Center, Roscoe Village, Avondale, Portage Park, Albany Park, Logan Square, and Humboldt Park. The months’ supply of inventory in these areas is quite low, with a very high level of demand from buyers. This results in a situation where we expect prices to climb, and for homes to spend less time on the market.
The markets where we expect to see more challenges headed into next year are the same ones that have been slowing down most in 2020 — that is, high-rise living and luxury condos in neighborhoods like the Gold Coast, River North, the Loop, and the Near South Side. Right now, some of these areas have more than 10 months of inventory, which generally means lower sales prices and more time on the market.
Traditionally, these are areas where many people buy properties to use as second homes. I think that’s actually one reason to have some optimism about these markets as we head into 2021. As consumer confidence rises and more people begin to go back to work every day in these areas, I believe we could start to see improvement and more activity as a whole.
It’s going to be important to keep an eye on the downtown markets in the months ahead. The question is, will inventory levels continue to increase, or will we start to see a plateau in 2021? As people come back to work downtown, will demand increase in those areas, as it has in the surrounding neighborhoods?
Want to Talk About the Big Picture?
Overall I would say I’m very optimistic about how things stand in Chicago, and I think 2021 will bring a very productive and healthy real estate market.
The other big piece of it? The turbulence of 2020 is a reminder that, now more than ever, people are going to need to have 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 2021? 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!