By Don DeBat

22-Aug-23 – That sigh of relief you hear when wandering the side streets of Chicago’s North Side is home buyers, sellers, and Realtors rejoicing that the 2023 residential tailspin market is finally reviving.

“While July of 2023 was the 17th consecutive month of year-over-year home sales declines in Lincoln Park, the Gold Coast, the Near North Side, Lakeview, and North Center, we are beginning to see some signs of an improving market,” observed Realtor John Irwin (left), co-author of the Baird & Warner August Market Analysis with broker Jackie Lafferty.

Although benchmark mortgage interest rates continue to creep toward 7 percent, the August Baird & Warner market analysis noted the following positive trends:

• Units under contract rise. Homes that went under contract during the past 16 months have experienced the same double-digit price decreases as unit sales decline. Though, notes Irwin, July was the first month that we have seen an increase in sales volume.

The 6.6 percent increase of homes under contract over last year was fueled by the Gold Coast and Near North Side, which posted a whopping 20.7 percent increase in July. Lincoln Park eked out a 1.7 percent increase, while Lakeview and North Center posted small decreases.

“The July increases are significant in that they will probably turn into August home sales increases and are the first signal of a possible turnaround,” said Irwin.

• Home prices increase. July represented the fourth consecutive month of median home price increases on the North Side. Traditionally, low-inventory markets can inflate home prices to dangerous levels for home buyers.

“Despite many multiple offers and low-market times, Chicago home prices have remained fairly stable in comparison to the suburbs and other parts of the country,” Irwin noted.

In the four neighborhoods surveyed in July, median home prices rose 5.1 percent over last year, and prices are now 0.3 percent ahead of year-to-date 2022 median prices.

North Center (right) led the group in July with a 7.2 percent median price increase compared with July 2022.

Lakeview’s median price rose 6.9 percent, and Lincoln Park saw prices increase 6.9 percent over the same month a year ago. However, median prices slipped 2.4 percent on the Gold Coast and Near North Side.

• Inventory supply is rising. Months of Inventory Supply (MSI) is a calculation that compares home sales with inventory levels. Traditionally, anything below 6.0 MSI is considered a seller’s market and anything above is considered a buyer’s market.

In 2023, inventory supply levels have dropped as low as 1.2 MSI in past months, reflecting the critical shortage of homes for sale. However, MSI levels are slowly starting to rise and have moved from 2.1 in Lakeview to 6.1 on the Near North Side.

“This does not mean that the inventory shortage is over,” Irwin cautions, “but it is moving in a positive direction.”

Though it is too early to announce a North Side real estate turnaround, says Irwin, the three comparatives above are a positive sign.

“There is a strong supply of buyers and while there are no statistics to give us true numbers, open house attendance and low market times indicate that buyers are getting more comfortable with higher interest rates,” he says.

30-year mortgage rates hit 7.09 percent – highest in 22 years

Thirty-year fixed-rate home loan interest charges have surpassed the 7 percent barrier, according to Freddie Mac’s weekly national survey.

On August 17, the Primary Mortgage Market Survey reported that benchmark 30-year fixed-rate mortgages averaged 7.09 percent nationwide, up from 6.96 percent a week ago. A year ago, lenders were charging an average of 5.13 percent.

“The last time the 30-year fixed-rate mortgage exceeded 7 percent was in November of 2022,” said Sam Khater, Freddie Mac’s Chief Economist.

Freddie Mac analysts said it is the first time in more than 22 years that 30-year fixed rates have risen well beyond the 7 percent level.

Mortgage experts predict home buyers could be in for a roller coaster ride for the balance of 2023 if the Federal Reserve decides to raise interest rates to fight inflation.

Rates last floated in the 7 percent bracket in 1999 and 2000, when many of today’s young home buyers were in diapers. In July 1999, borrowers paid 7.52 percent, while rates rose to 7.84 percent in December 1999. Rates skyrocketed to a lofty 8.23 percent in March 2000, but fell back to 7.54 percent in December of that year.

“The economy continues to do better than expected and the 10-year Treasury yield has moved up, causing mortgage rates to climb,” said Khater (left). “Demand has been impacted by affordability headwinds, but low inventory remains the root cause of stalling home sales.”

Fifteen-year fixed mortgages averaged 6.46 percent on August 17, up from 6.34 percent a week earlier. A year ago, lenders were charging 4.55 percent for a 15-year fixed mortgage.

“There is no doubt that continued high rates will prolong affordability challenges longer than expected, particularly with home prices on the rise again,” said Khater on August 10 when mortgage rates had increased for a third straight week. However, Khater noted that upward pressure on interest rates is the product of a resilient economy with low unemployment and strong wage growth, which “historically has kept purchase demand solid.”

The Freddie Mac survey is focused on conventional, conforming, fully amortizing home purchase loans for borrowers who put 20 percent down and have excellent credit.