Downtown Chicago is the central hub of Chicagoland. But why is the real estate here unchanged or a bit since 2008?

Today’s video is dedicated to one of our loyal subscribers who had a great question

“Why are the real estate prices in downtown Chicago pretty much unchanged or a bit down compared to a decade ago?”

Chicago is known as a “Gateway” real estate market - an elite group of powerhouse U.S. cities with high liquidity, large economies, influential culture, and international brand recognition. And the focal point of its economy is the downtown area. But while Downtown is very rich, the real estate prices here have had few changes since the 2008 crash. 

So let’s get down to business. Here are the different reasons why the Downtown Chicago real estate market

1. Downtown Chicago homes are more expensive than elsewhere in Illinois

Downtown Chicago is one of the most popular places to live in Illinois. But while the real estate properties here are praised for being wise investments, their steep prices make them out of reach for first-time buyers.

The median listing home price in Downtown Chicago was $440,000, with home prices ranging from $152,500 to $18,750,000. The median listing home price per square foot was $366. The median home sold price was $410,000.

These high prices of real estate prices caused many vacancies in downtown Chicago’s iconic high-rise buildings. Still, the real estate market here is relatively stable because outside investors find Chicago properties appealing for their investment portfolio. They appreciate the upscale community and the strong multicultural and multi-industry economy supporting it.

2. Downtown Chicago is a buyer's market

Downtown Chicago is a buyer’s market, meaning there are more properties than buyers in the area.

The densely populated downtown area is calmer in terms of homebuyer and renter activity during the COVID-19 pandemic, compared to other areas of Illinois. 

According to Redfin, the Downtown real estate market is not competitive. Multiple offers are rare. The average homes sell for about 1% below list price and go pending in around 66 days.

Even if there is high demand for Chicago properties, the high prices of downtown Chicago discourage people are discouraged from purchasing homes. 

3. The downtown is a business hub 

Downtown Chicago is where the corporate structure of Chicago goes. So as remote work becomes more mainstream, there is less demand from workers for housing within the downtown area.

Many people living in studio apartments and towering buildings that needed long elevator journeys sought more space and less engagement with people outside their own households during the COVID-19 pandemic. The local purchasing frenzy reflects national trends, as more people make the transition from renting to owning a home in order to enjoy remote working a lot easier.

Workers are choosing not to live downtown, but just in nearby neighborhoods.

4. Population is dwindling 

Downtown Chicago’s population is dwindling due to residents’ migration to smaller communities with more space and views of the rivers or Lake Michigan. The Chicago Agent Magazine reports that immediate proximity to amenities is not as important as in the past, as fewer people are using public transportation and going out to restaurants and bars in the same way. With the availability of delivery services, they would rather have an extra room, backyard, or finished basement.

For some buyers, this means relocating from large cities to smaller, more affordable urban areas. People may have access to a lake, river, or pond, go through forests and trails, or even be close to designated hunting grounds, depending on their interests. 

Downtown residents are moving to neighborhoods such as West Town, Pilsen, and West Loop. You’re still close enough to work, but there are tree-lined streets and amenities to walk to which you might not frequent when you’re at the office.

5. Downtown Chicago's crime problem

Chicago is known in the news cycle for shootings, robberies, and other crimes. And this dangerous reputation doesn’t help the real estate market here.

In a 2012 research, the Center for American Progress looked at the scale of the possible consequences of crime on property values. The impact on property values was also significant; according to the study, a 10% drop in homicides would result in a 0.83 percent gain in house values the following year.

All criminal action has direct and indirect consequences to the victim and society as a whole. Some secondary consequences, such as the wider economic ramifications that might ripple outside following a crime, are more difficult to substantiate than others. Residents might stay away from unsafe areas, go outside less, or relocate, but research has shown that criminal activity can spread between neighborhoods in ways that mirror contagious diseases. 

6. Congestion and traffic

It's no secret that Chicago traffic is horrible and becoming worse. The convergence of rail, road, air and water networks in downtown Chicago makes it a vital element of the global marketplace. However, growing traffic poses a long-term danger to the economy of Chicagoland. 

Congestion not only adds to the expense of doing business, but it also prevents larger companies from developing cost-cutting logistics methods. And the hassle of finding good parking spaces and getting to work and errands amid the long lines of traffic is so much that people are often frustrated and not open to buying properties downtown.

7. High tax burden

According to real estate professionals, Downtown Chicago's high real estate prices and the high tax burden combine into a very problematic storm. Properties here spend the most time on the market before selling and sell for the least amount of money when compared to other major American cities, according to Redfin. Even so, just 15% of downtown Chicago houses sell for less than their asking price.

And the high property tax rates are also heavy on homebuyers’ minds. Recent data shows that homeowners pay between $7,500 and $9,500 in taxes every year on a $150,000 home. That doesn’t include the myriad of other taxes that are exclusive to living downtown. 

8. Changes to housing loans and additional oversight

Unlike the market a decade ago, there is strict regulation before one can buy a home, especially in downtown Chicago. The housing market here is not very competitive, because of the tight controls surrounding mortgages to prevent a crash akin to the 2008 financial crash.

In 2022, rising loan rates have made 26 percent of individuals less inclined to buy a home this year, according to a survey estimating the prognosis for homeowners in 2022. According to Freddie Mac's weekly Primary Mortgage Market Survey, the average interest rate has increased by more than half a percentage point since March 10. For the first time since 2019, the average rose above 4% on March 17.

Interest rates on mortgages have a substantial impact on the overall long-term cost of financing a house purchase. On the one hand, mortgage borrowers seek the lowest interest rates feasible. With that, homebuyers may perceive parallels between today's situation and the 2006 housing market, when home prices became progressively unsustainable until the bubble burst, contributing to the global financial crisis known as the Great Recession.

People bought into homes assuming they could manage the payments, only to find out later that their payments had skyrocketed to untenable levels due to various home loans, such as adjustable-rate mortgages with large "balloon payments" due at the end of the term. 

But these types of loans are significantly less widespread today, and there is tighter control of home lending in the wake of the late-2000s crisis. Most borrowers nowadays choose for 30-year fixed-rate mortgages. As a result, if you own a property, you're still paying the same fixed-rate mortgage payment. 

There are also fewer buyers to go around because banks and real estate agents are more careful about who to sell the homes. There are background checks, credit checks, and more that happens before the home sale gets started. This has severely dampened the real estate market.

Conclusion

Putting all these things together, Downtown Chicago real estate is suffering the effects of the past and current events. 10 years ago, we were recovering from the mortgage crisis. Now we are dealing with the aftermath of COVID-19, the stay-at-home mandates, and the inevitable migration of people out of the city. Plus, the bad sides of Chicago that are very prominent on the news cycle - crimes and traffic - discourage people who might want to move into the community.