One of the most frequently asked questions to us Chicagoland realtors is: Why is Chicago Residential Real Estate expensive?
The Chicago residential real estate remains quite strong. The first week of 2022 witnessed a decrease in new listings. According to data from the Chicago Association of Realtors, the new year began with 30 percent fewer properties on the market than the same time the previous year. So it’s a red-hot market, with more demand than supply.
But amidst the very competitive housing market, many are still hesitant in buying real estate in Chicago due to its high prices.
Aside from the high demand and low supply, there are many other factors behind the high costs of Chicago homes.
Let’s talk about the four main reasons why Chicago Residential Real Estate is so expensive.
Reasons why Chicago residential real estate is so expensive
1. Low housing inventory
The first reason for the high prices of Chicago real estate is low inventory.
Many people were compelled to work from home as a result of the pandemic, and some lost their jobs entirely. Many people found themselves working and learning from home once schools turned to remote learning.
Because of this lifestyle change, many people were hesitant to sell their homes because they were uncertain about their future. Homeowners who expected to sell in 2020 decided to stay put and ride out the storm in familiar surroundings. COVID-19 prompted many lifestyle adjustments, and record cheap mortgage rates created a frenzy among home buyers and sellers. Mortgage rates were at an all-time low, which was a major contributor.
Some buyers have had to make concessions on the size and features of their new property. The scarcity of affordable housing is the most significant obstacle that many would-be homeowners encounter. It's a good moment to sell investment properties that aren't performing as well as others, thanks to cheap mortgage rates. This is an excellent opportunity to sell the asset, recoup expenditures, and possibly make a profit sooner than expected.
Many landlords are taking advantage of the shaky home market by upgrading and repairing their rental properties to meet or surpass industry standards.
Simply put, there are more buyers than houses for sale. So you need to get on board with a fully-skilled realty team so you can grab the best deal for your dream home if you are in the market to buy.
2. High property taxes
The second crucial reason why Chicago properties have a high price tag is because it is the most taxed city in the United States. Along with two other cities, Chicago is the city with the highest tax burden. Due to a revenue shortfall, the city's sales tax continues to rise.
Worse for homebuyers and real estate investors - Illinois also has the country's second-highest property tax rate. From 1999 to 2019, Lake County's total residential property taxes climbed by 122 percent (51 percent when adjusted for inflation).
3. High building costs
Worsening the inventory issues in the housing market is the ultra-high building costs of Chicago real estate.
Chicago is one of the most expensive cities to build in. The cost of construction in Chicago increased by 4% in 2017. Based on the cost of a single-family home, the typical residential building cost is around $290-$349 per square foot. An apartment or condominium minimum in a mid-rise structure costs between $406 and $527 per square foot on average. And a high-rise commercial office normally costs $752-$903 per square foot on average.
According to the Commercial Construction Index, over 90% of the 2,700 builders, construction managers, and contractor organizations across the country have struggled to recruit and find experienced construction employees. This understaffing issue has persisted since it was originally reported in the second quarter of 2017. An aging population of craftsmen entering retirement is one of the key drivers of this drop.
For the past 15 years, construction expenses have been rising across the country. Costs are continuing to rise as contractors and builders struggle to recruit qualified labor. In addition, rising material costs are driving up costs.
4. Highly urbanized city
Lastly, Chicago real estate is expensive because city life puts a premium on land and properties.
Chicago experience will be determined by your ZIP code. Each of the city's 77 declared community areas, from Uptown to Hyde Park, East Garfield to the Loop, has its own distinct flavor. In the winter, the summer's festivals, fireworks, and beach days give way to ice skating, zoo lights, and holiday happiness — with a warm spring and a vibrant fall in between. The Museum Campus is unrivaled, the beloved Cubbies never fail to entertain, and the different events seem to go on forever.
The cost of living in Chicago varies substantially depending on where you live. Homes sell for more than $1 million in north Chicago areas like the Near North Side, Lake View, and Lincoln Park, while homes in other sections of the city sell for a fraction of that.
All things said, buying a home in Chicago is worth it. You can reap benefits through home appreciation and additional income through rental properties.
You can buy homes for as low as 3% downpayment and allot at least 30% of your monthly income to mortgage payments. To get the best deal in your homebuying journey, you need a top-notch, well-skilled team of real estate professionals. Like Nex-Gen Real Estate.
If you are interested in investing in Chicago real estate, book a free consultation call with me on the link below.
Thanks for watching and as always…”Where is your future?”