After many years of expansion and growth nationwide, most co-op and condominium markets saw both turbulence and some overall decline in 2018. The market has turned from one favoring sellers to one more hospitable to buyers. Markets like stability – and 2018 was a year marked by uncertainty. This uncertainty can be pegged to several trends, the most prominent of which were fluctuations in interest rates; changes in tax laws thanks to the 2017 tax bill depressing the tax benefits of home ownership; overbuilding (and potential overbuilding); and – despite the generally good employment figures – an undercurrent of declining confidence in the overall economic picture.
According to Corcoran’s 2018 fourth quarter report: “Market-wide closed sales declined as potential buyers grappled with a confluence of factors that created uncertainty in the market. Buyers’ concerns included rising mortgage interest rates, tax-law reform, volatility in the financial markets, foreign capital restrictions, and political distractions. As a consequence, many prospective buyers are choosing to wait on the sidelines until prices adjust to a more accessible level and other market factors calm.”
Joanna Mayfield Marks, a broker with the New York-based firm Halstead, described the market this way: “In 2018, there were a couple ends of the market that were less impacted. We saw a number of buyers competing in the $700,000-to-$1.5 million segment. There was competition, and even some bidding wars. In the lower and luxury segments, though, we saw fewer buyers, and no bidding wars. What I’m seeing right now is that competition is beginning to return. I’m seeing positive reports about the economy, consumer confidence is better, and interest rates were down at the beginning of the year. So even at the lower end of the market, things appear to be picking up. The truth is that interest rates – even small increments like a quarter point – affect the market. Two-bedroom units seem to be the most competitive right now. There are even multiple bidding situations. Essentially, things look positive.”
“Chicago isn’t one of the cool kids anymore,” according to an article in Crain’s Chicago Business from last October. The Windy City is ranked 49th of 79 markets in the ‘Emerging Trends in Real Estate’ survey, down from 42nd last year. The overall feeling is one of caution. “Wherever they put their money, survey respondents were cautious about the direction of the broader market,” said the article, “wondering how much longer the good times will last. They’re not bracing for a bust, but they can’t see the market going much higher, either.”
According to IllinoisPolicy.org, the reasons behind the stagnation and possible impending decline in the Chicago residential market include outmigration, property taxes, and income taxes—including both Gov. J.B. Pritzker’s new state tax structure, and the still-resonating impact of the change in federal income taxes in 2017. Illinois in general – and Chicago in particular – is one of only 10 of the largest metro areas in the U.S. to experience a decline in population last year.