Chicago’s housing market is normalizing after unprecedented volatility during the pandemic

Like many other major cities across the country, the COVID-19 pandemic has not been kind to Chicago. People looking for more space to enable working from home caused a small outflow of residents, causing the housing market to come to a standstill.

But people have returned to the Windy City, and lately home prices have been rising at a pace that would be perfect for Goldilocks — not too hot, not too cold, but just right.

“We see slight price increases, but nothing crazy in recent years.” said Tricia Marchert, an agent at Keller Williams Infinity. “We’ve just seen a nice, easy pace and I think that’s good. [Buyers] are the ones who have benefited from just the stability and lack of volatility.”

Chicago’s long-term trajectory largely mirrors that of the Midwest as a whole. The regional housing market was slower to recover from the financial crisis of the late 2000s than other parts of the country, having been reeling from a general decline in the region for years before that.

As a result, home prices remained stagnant for much of the decade after the Great Recession, but the pandemic caused unprecedented volatility in the Chicago market. According to data from Alto’s research, the average home price rose by almost 20% in the first seven months of the pandemic, and then rose another 11% in the first four months of 2021. This was followed by a 15% crash in the second half of 2021.

Chicago has since shown a more traditional seasonal home price pattern, but since February 2023, the average home price has increased 27%.

The current market has largely normalized and is experiencing a lull for the same reasons as many other markets in the country. New listings have come to a standstill due to rising inventory. The prospect of lower mortgage rates has frozen many buyers who think they can get a better deal if they wait a few months, not to mention sellers who are averse to giving up mortgages in the 3% range.

Property taxes are another factor slowing things down. In Cook County, the property tax rate applies increased significantlya measure by municipal officials intended to put budgets that have been turned upside down back in order.

“Some communities have been hit with a 35% to 40% increase,” he said RE/MAX properties agent Ryan Smith, adding that Cook County’s southern suburbs have been particularly affected by higher tax rates. “If you take a family of four making $125,000 on a $200,000 house, and their taxes go from $6,000 to $7,500, that’s a few hundred dollars a month, right? It is a heavy burden to bear.”

Not all parts of the city have fully recovered from the pandemic. According to Scott Curcio, an agent at Baird & Warner Real Estate, the downtown, Gold Coast and River North neighborhoods are still in a recovery phase.

“We have seen higher monthly inventory supply there, but that has decreased throughout the year,” Curcio says. “It has been very hot in most suburbs. I haven’t seen any shift [to a buyer’s market]. I know some U.S. coastal markets are seeing that, and what starts on the coast will generally make its way here, usually within 12 to 18 months.”

While Chicago officers say they haven’t seen much effect from the new rules regarding the National Association of Real Estate AgentsDue to the antitrust ruling, mortgage interest rates will remain a major variable in the market in the coming months.

Earlier this month the Federal Reserve interest rates reduced by half a point. While it’s a welcome change, many agents say the rate cut – which has been anticipated for months – is already baked into the market.

Mortgage interest rates have not changed much since the reduction. On Tuesday, the 30-year compliance rate was 6.25% HousingWire‘s Mortgage Interest Center. But assuming interest rates continue to fall, this could make for a busier-than-normal shopping season for the rest of the year.

Curcio said he has received numerous calls over the past three weeks from buyers and sellers asking about mortgage rates and wanting to take advantage of the rate cut.

“There’s a lot of consumer confidence that seems to have developed suddenly,” he said. “So I’m cautiously optimistic that falling interest rates will finally bring more inventory that could even things out for buyers, especially as we enter the first quarter of 2025.”