By Jackson Elliott
Chicago’s high real estate prices and the lack of buyers might indicate a housing market bubble, one real estate agent said.
Anthony Zammit, a 17-year industry veteran and the CEO of Lofty Real Estate, said that the slow market might be a sign of over-inflated real estate prices, especially given that half of Illinois residents want to leave the state, according to a 2014 Gallup poll.
“We’re in a pretty strong market and people in the last five years are making money and working, so people are buying,” he said, adding that great economic conditions don’t last forever.
Chicago residents may struggle to find a buyer, but most people have been able to sell their house for the price they ask, according to data from Redfin real estate company. However, buyers haven’t been willing to pay more for a house than the asking price.
Compared to other major American cities, Chicago homes spend the longest time on the market before selling and sell above their asking price least often, Redfin found. Still, only 15% of Chicago homes sell for lower than their listed price.
Zammit said that high taxes in the southern suburbs make them hardest to sell in the Chicagoland area. On a $150,000 house there, homeowners pay between $7,500 and $9,500 in taxes per year, he said. The average household in the south suburbs earns a little over $52,000 a year, according to data from the U.S. Census Bureau.
“It’s not even worth buying property down there,” he said, adding that the state’s high property taxes overall were the reason for Illinois’s population loss. Only New Jersey has higher property taxes than Illinois.
“Chicagoland is going to be more expensive than Springfield. But the taxes here are insane,” he said.
However, Illinois real estate prices have remained high so far despite the state’s shrinking population, Zammit said. From 2014 to 2019, Illinois lost over 157,000 residents, according to US Census Bureau figures.
Zammit said the market hasn’t been worse only because of a strong national economy. Millennials, who haven’t lived through better housing markets, also keep the Chicago market higher. They often buy Chicago properties that older house buyers won’t purchase, he said.
“People are making money right now, and a lot of millennials don’t know any other real estate market. The slow market affects our people who are 35 to 40 and over,” he said.
The same trend of high prices coupled with lower demand can be seen in Chicago rents. Over half of Chicago’s population rents houses, Zammit said. A weak housing market might be part of the reason why rents have risen.
“If the housing market is having a bad time, rentals will go up or stay the same because of demand,” he said. “The less people are buying, the more people are renting, and that generally drives up prices.”
To fix high rents some people have suggested rent controls but that would only make the city’s housing problems worse, Zammit said.
“Developers aren’t going to come in because the price of the property is still going to go up, taxes are still going to go up, but the rent is staying the same,” he said.
Although the S&P 500 has dropped 20% for the first time in a decade as of March 12 when concerns over the coronavirus hit, Zammit said the real estate market has been more immune to the disease panic so far. Unlike companies on the stock market, properties can’t go bankrupt.
“Investors are still going to invest,” he said. “You can always recoup your costs in real estate.”