The housing market in the Chicago area is expected to be the weakest of any of the nation’s 100 largest metropolitan areas during 2017, leaving opportunity for people to buy homes at affordable prices while perhaps frustrating home sellers.
Both prices and sales will increase, but at a stunted rate compared with other areas, according to a forecast by Realtor.com, a website for the National Association of Realtors. The prices of homes throughout the Chicago metropolitan area are expected to climb just 1.95 percent, and sales of new and existing homes are expected to increase 2.27 percent.
Nationally, home prices are anticipated to climb 3.9 percent and home sales are predicted to rise 2.6 percent, according to the research. Phoenix is ranked at the top, with prices jumping 5.94 percent and sales climbing 7.24 percent.
Chicago’s problem is a combination of slow growth in both population and jobs, said Jonathan Smoke, an economist at Realtor.com. The area’s population is expected to increase only 1 percent next year.
Given the size of Chicago, the city should be among the nation’s top three markets for job creation, Smoke said. Instead, Chicago is ranked eighth, with job growth much stronger in areas such as Dallas and Phoenix.
Both job creation and population growth drive home sales because new people moving into areas need homes. In areas with strong job growth people also tend to have paychecks that allow them to buy first homes and move up to better homes.
Nationally, Chicago has been among the slowest areas to recover from the housing market crash. According to the S&P CoreLogic Case-Shiller Index released this week, Chicago’s home prices on average remain about 20 percent below July 2007 levels. Meanwhile, the average price for the largest 20 metropolitan areas is now above pre-crash levels.
The Midwest has been slower moving, but Chicago’s housing market lags even the region, said Smoke. Stronger growth is expected next year in Columbus, Ohio; Indianapolis; Madison, Wis.; and Minneapolis.
Because Chicago has lagged, however, homebuyers are likely to be able to find affordable homes, Smoke said. On the other hand, as interest rates start rising on mortgages, people will have more difficulty keeping monthly payments affordable. That could hold back the millennials, who have been significant homebuyers in the Chicago area and throughout the Midwest, he said.
About 42 percent of homebuyers in the Chicago area have been under age 35. Nationally, the under-35 group is expected to make up only 33 percent of the homebuyer pool next year. Baby boomers are expected to represent 30 percent of buyers nationwide.
Realtor.com economists forecast that interest rates will rise to 4.5 percent next year. The combination of rising rates and sharp price appreciation in areas that have had hot housing markets, may slow prices and sales somewhat in areas such as Seattle, Portland, Ore., and Denver, said Smoke.
The top 10 metro area housing markets in 2017, according to Realtor.com, are to be: Phoenix and Tucson in Arizona; Los Angeles, Sacramento and Riverside in California; Jackson and Orlando in Florida; Boston, Mass.; Raleigh, N.C.; and Portland, Ore.
The nation’s homeownership rate is expected to stabilize at 63.5 percent after bottoming at 62.9 percent in 2016.
gmarksjarvis@chicagotribune.com
Twitter @gailmarksjarvis
