© John Constantine / Chicago Tribune / TNS
Lauren Walz (L), a real estate broker with Dawn McKenna Group Coldwell Banker, shows her client Chrisy Rediehs of Hinsdale a house on April 6, 2022, in Western Springs.
The real estate market has had to deal with a lot lately: the COVID-19 pandemic, rising property taxes, inflation, rising building material costs, housing inventory shortages… .
And then there are other factors, from affordability to rising rental prices.
The latest addition to the list: the rising interest rates that are affecting mortgages.
In 2022 there was hope of relief for future homebuyers. But a survey forecasting homeowners’ prospects in 2022 reveals that 26 percent of people would be less likely to buy a home this year due to rising interest rates. The average interest rate has risen more than half a percentage point since March 10, according to Freddie Mac’s weekly survey of the primary mortgage market. And the average rose above four percent on March 17 for the first time since 2019.
The result, according to local and national real estate agents, is that people with a strong motivation to move (for relocation, for school, for family growth or reduction, for change of marital status…) will do so regardless of interest rates, but some buyers are moving faster to buy having learned how quickly rates can rise.
Others are pausing to buy or reconfiguring their home-hunting expectations and what they can realistically afford. Some choose to stay if the move is more of a want and less of a need.
“We’ve increased the conversation around interest rates, but there’s still such a shortage of inventory and demand is still so high that it seems to be conversation number three, four or five,” said Lauren Walz, a Western real estate agent. Springs and La Grange for Dawn McKenna Group.
“There have been more adjustments in budgets and expectations due to interest rate increases than actual changes in the real estate market. A little bit of an increase has created some conversation, but if you look at the last 20 to 30 years, they’re still historically low.”
“Interest rates in the early 1980s were over 18 percent and people kept moving,” said Amy Kite, agent and owner of the Kite real estate team. “Five percent is not really high, but the reality is that interest rates have been so low that now people think five percent is high.”
Kite said the rise in interest rates since December means buyers aren’t able to spend as much on a new home. For example, buyers who were qualified to buy a home for $600,000 in December are now qualified to buy in the $450,000 range.
According to data from the Chicago Association of Realtors (CAR), the increase in interest rates is not having a significant impact in terms of slowing down the market: buyer demand remains high.
The average sales price of homes in the Chicago area from March 2012 to March 2022 has gone from $151,680 to $310,000, and from $295,000 to $310,000 from March 2021 to March 2022. And that’s in light of a marked reduction in inventory (a 29 percent reduction in all Chicago homes for sale, from last year to now, and 27.4 percent fewer single-family homes for sale from March 2021 to 2022).
“Prices are, of course, moving up due to the supply and demand element,” said CAR president Antje Gehrken. “Buyer demand remains high, and with a little persistence, a great realtor and some good strategy, buyers are still able to get into a home.”
Makeda Smith, a real estate broker at Smith & Partners Realty Group Inc. in Plainfield, helps realtors navigate the existing real estate market. She said the agents she has spoken with across the country are saying they have multiple pre-approved buyers for a home, but the agents are having a hard time finding a home.
“The median price right now in and around Chicago is $309,000, and last year it was $290,000; the property was more affordable last year than it is this year, unless they have some kind of increase in their income,” Smith said. “With the interest rate there, they may not be able to afford it this year.”
Hammond resident Natalie Lukich wanted to move to the Chicago area following losing her husband of 18 years. She called her home buying experience a “roller coaster” and a “pretty chaotic” experience in which she cried multiple times out of frustration. After looking at regarding 20 houses with her partner in three months, they found a house in the Beverly area and put in an offer above the asking price, $20,000 down, and still outbid them.
“It’s crazy,” he says. “I was getting a little frantic because there is a lot of competition. What do we have to do to get into a place before things go crazy with rates? I think the hardest thing is to get your hopes up. People have been offering cash for $500,000 houses. How can you compete with that?
Lukich finally had an accepted offer on a three-bedroom, two-bathroom house in Bridgeport. They plan to remodel it following selling their current homes. They will close the operation on May 20. He believes they got the house in part because the realtor lives in the area, specializes in the South Side, and they were the first to bid on the house. They paid the asking price, but they’re still paying $150,000 down.
“I think the other thing that helped us was that we were very flexible in what we were looking for,” he said. “If you’re more flexible, that makes it slightly easier.”
Joseph Camerieri, executive vice president of sales and strategy at Mortgage Cadence, a provider of lending software and the firm that brought regarding the 2022 homeownership outlook, said supply and demand are so out of balance that even rising interest rates won’t affect it.
“If you want to buy a house for $700,000 to $800,000 or a million dollars, you can buy them anywhere, there are many listings out there. But if you’re trying to get something under $450,000 in a major metro area, it’s very difficult,” he said. “When interest rates go up, they will drive a part of the buyers out of the market, because they will no longer be able to afford homes that have appreciated so much. Interest rates will have to go up a lot for house prices to begin to decline. That probably won’t happen.”
But according to Gehrken, diminishing opportunities for some also mean less competition for others. Walz said that given the continued competition for homes, there are several layers of buyers waiting to jump into the market, including buyers who realize they have to sell an additional property before they start considering buying another home.
“That layer of buyers is preparing to be the next big buyer in the market,” Walz said.
According to another report from a residential/commercial real estate software company, 35.2 percent of buyers in the Chicago metro area put more than 20 percent down on their home purchase, with an average down payment of $40,000 . These large down payments are becoming more common.
Kite said he’s had many homeowners who were hesitant to sell their homes, fearing they wouldn’t be able to find anything else to buy.
“Some sellers don’t realize that interest rates will affect how much they sell their property for and how long it takes to sell it,” Kite said. “Sellers need to understand that the buyer who makes them an offer today may lower their purchase price when interest rates rise. We have seen this happen in the last two weeks. Sellers have to understand that the real estate market has changed and they may have to negotiate a little more than in the past and certainly plan that it takes more time to find a buyer.”
Oak Forest resident Michelle Tancredi is helping her 83-year-old father and 80-year-old mother, Bill and Francine Casey, find another home. The Chicago Ridge couple wants to move closer to their daughter in an emergency. And, since they began their search earlier this year, she can relate to everything Kite and Smith said.
“We’ve seen a handful of houses and some of them just aren’t accessible… My mom uses a walker. They have to look for some specific things and that’s what hurts them as well,” she said. “They need to get a house that doesn’t have stairs because of their age; As soon as a ranch-style home comes on the market, it gets occupied. There are multiple offers within a few hours of going on the market, they go very fast; houses are selling above asking price and there are bidding wars. [Mi padre está] Surprised. If he doesn’t find something for June or July, he’ll say it’s not worth it.”
Regardless of interest rates, realtors like Walz and Gehrken say it’s still a great time to buy a home. Walz said that when things get chaotic in the world, buyers feel comfortable investing in real estate. Real estate agents are helping buyers and sellers deal with market expectations.
“There are a lot of different profiles of buyers competing for the same houses,” Walz said. “Many people are lowering the budget and their expectations to be prepared with a much stronger offer. In the past, some buyers weren’t willing to pull the trigger until the house was perfect or considered their dream home. Since inventory is so tight, the mindset has now changed to the house being good enough for now. And this is what I need to buy a house in this market.”
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