By Don DeBat

23-Jan-24 – The stabilizing and lowering of home loan interest rates should be a stimulus for the 2024 spring residential real estate season in Chicago.

That’s the optimistic early 2024 forecast from Baird & Warner’s January Market Analysis, co-authored by Realtors John Irwin and Jackie Lafferty (left).

On January 11, the Freddie Mac Primary Mortgage Market Survey reported that benchmark 30-year fixed-rate mortgages nationwide averaged 6.66 percent, up slightly from 6.62 percent a week earlier. A year ago, the 30-year fixed loans averaged 6.33 percent.

Fifteen-year fixed mortgages averaged 5.87 percent on January 11, down from 5.89 percent a week earlier. A year ago, 15-year fixed loans averaged 5.52 percent.

“Mortgage rates have not moved materially over the last three weeks and remain in the mid-6 percent range, which has marginally increased home buyer demand,” said Sam Khater (right), Freddie Mac’s Chief Economist. “Even this slight uptick in demand, combined with inventory that remains tight, continues to cause prices to rise faster than incomes, meaning affordability remains a major headwind for buyers.”

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.

In the Baird & Warner January Market Analysis, Irwin noted that after 21 consecutive months of year-over-year home sales decreases, 2023 ended with a 2.3 percent increase in December for Lakeview, Lincoln Park, Near North Side, and North Center.

“Hopefully, these positive numbers for December will signal a Chicago real estate rebound in 2024,” Irwin said. “However, home buyers and sellers still face some challenges before we can feel confident that the market is rebounding.”

The Baird & Warner analysis also noted the following positive trends:

Resale homes sales. In December 2023, home sales rose 2.3 percent, compared with a decline of 23.8 percent in December 2022. While three of the four neighborhoods reported increases, sales in Lincoln Park declined 29.8 percent.

The December sales increase was driven primarily by homes priced under $500,000 and homes priced over $2 million.

“The increase in home sales is great news, but there are still inconsistencies in neighborhoods and price points,” Irwin observed.

Listing inventory. With interest rates dropping, historically low inventory levels are now the main obstacle to a real estate rebound. Inventory levels dropped 20.1 percent in 2023 and fell 23.4 percent in December.

“These decreases were consistent in all four neighborhoods and price points,” Irwin noted. “The market will need a significant infusion of new inventory in order to sustain a long-term real estate turnaround.”

Interest rates. Falling interest rates and rising loan limits have given North Side real estate a new enthusiasm for 2024. Most home loans have dropped into the mid-6 percent range and are expected to fall as low as 5.5 percent by the second quarter, economists predict.

Loan limits. Conventional home loan limits have risen to $766,550 in 2023 from $726,000 in 2022. The limits for other loans, such as Federal Housing Administration-insured mortgages, have also been increased.

“Loan limit increases – in addition to interest rate decreases – are restoring some of the buying power that has been lost in the past two years,” said Irwin. “Real estate brokers can already see an increase in buyer activity in the past few weeks. The lowering of interest rates will hopefully bring sellers back into the market, raising inventory levels that are so desperately needed.”

Resale home prices. Overall in 2023, resale home prices rose by 1.3 percent over 2022. However, in December prices rose a hefty 6.3 percent.

“Traditionally, low inventory levels significantly drive up prices, but this has not been the case on Chicago’s North Side,” Irwin said. “North Side resale price numbers are lower than the Chicago suburbs and many cities across the country. As we head into the spring real estate season, sellers should be careful not to fall victim to perceived market momentum. Homes need to be priced competitively to avoid extended market times and lower offers.”

Crystal ball gazing. Irwin said it is too early to predict the direction of the 2024 market, but unlike 2023, there are positive indicators.

“Buyers and sellers need to stay updated on a regular basis for market changes in their specific neighborhood and property types,” he advised. “The market for a single-family home in Lincoln Park can be entirely different from a high-rise condo in the Gold Coast.”