Considering a move to the Chicago Suburbs? Curious as to what’s going on in the real estate market? Here’s your August, 2021 Chicago Suburbs Real Estate Market Update! In this video, we consider the following:
✅ Is the housing market about to crash?💥
✅ What’s going on with home prices? 💸
✅ How does mortgage debt today compare to 2008? 📉
✅ How do the Burr Ridge, Hinsdale, & Oak Brook markets compare to each other? 🤷♂️
Here’s a link to the Motley Fool article I discuss in the video. The article itself isn’t bad, but the headline is irresponsible. It’s a great example of what happens when driving consumer traffic to your website is more important than providing accurate, helpful information.
https://www.fool.com/the-ascent/mortgages/articles/a-housing-market-crash-is-coming-heres-how-to-prepare/
Did you enjoy this video or find it helpful? If so, be sure to 𝐋𝐈𝐊𝐄, 𝐒𝐇𝐀𝐑𝐄, & 𝐒𝐔𝐁𝐒𝐂𝐑𝐈𝐁𝐄 to my channel.
My name is Eric and I’m a REALTOR® in Chicago, Illinois. I specialize in helping out of state newcomers find the perfect home here in Chicago. When I’m not selling homes, I love spending time with my wife and 6 children, serving my congregations (I’m an ordained Lutheran pastor and serve Zion, Summit & Immanuel, Hodgkins), exercising, and making Neapolitan pizza from scratch and baking it in my Ooni wood-fired oven. Despite being a Chicago native, I’m a St. Louis Blues fan (I blame it on my time at the Seminary), and some of my favorite recent shows include Billions, Breaking Bad, and Loki. I devour books like they’re pizza. I’ve recently finished “Think Again” by Adam Grant (one of my favorite authors), and now I’m taking a break from the business genre to read “Friday Night Lights.”
BLOG: www.ericandersenhomes.com/blog/
If you want have questions about moving to Chicago or would like to discuss the real estate market, feel free to reach out! I’d love to hear from you. Email me anytime at eric@eandersenhomes.com.
Eric Andersen, B.A., M.Div.
Owner/REALTOR®, Eric Andersen Homes
📲 Text/Call: 708.674.6725
📩 Email: eric@eandersenhomes.com
Transcript:
Hi, welcome back to my channel. In this video, we’re going to take a look at the current state of the real estate market as of August, 2021. We’re going to start by addressing a question that has received a lot of attention as of late, and that’s the question, “are we in housing bubble?” We’ll also take a look at market conditions in general before turning our attention to the local suburban markets of Burr Ridge, Hinsdale, and Oak Brook. Before we get to that, a quick reminder to like this video, subscribe to my channel, and turn on notifications so you don’t miss out on other market updates, neighborhood tours, and new listings in the Chicago suburbs. I’m Eric, owner and designated managing broker at Eric Andersen Homes, and this is your August, 2021 Chicago suburbs housing market update. So first, are we in a housing bubble? I’ve noticed that this question has been fueled both by ignorance and even some disinformation. As Mark Hackett recently said,“When you have a void of information, emotion tends to drive decision making.” That’s a dangerous thing when it comes to real estate. For most of us, our home is our biggest asset, so you don’t want to make buying and selling decisions purely based on emotion. I’m always stunned when clients tell me their previous agent didn’t provide them with data when they were buying or selling a home. Buying and selling a home is highly emotional, but there should always be some objective data that’s driving the decision. Bubble speculation has also been fueled by emotion and a void of information. Homeowners suffered significant losses when the bubble burst in 2008. That memory is still fresh, and so fear that it could happen again is perfectly normal. But as we will see, the data does not bear those concerns out, at least not this time around. But it’s not only emotion or ignorance that fuels bubble speculation. There’s also a lot of bad information out there. I recently came across this doomsday headline from the Motley Fool, which flat out states, “A Housing Market Crash Is Coming. Here’s How to Prepare.” And just in case that weren’t clear enough, the subtitle of the article goes on to say, “History repeats itself. Here’s how to get ready.” Since no reputable economist is predicting this, I was stunned to see this headline. But if you take the time to read on, the article goes on to actually contradict the headline, stating that what they’re defining as a “crash” is simply a “cooling of the market and a pushback on home prices.” There’s a big difference between a market cooling and a crash. Pushing back on home prices, yes. Another worldwide economic collapse, no. The rate of appreciation the real estate market has currently been experiencing isn’t sustainable, but that doesn’t mean everything is about to collapse. I covered this in more detail in my July, 2021 market update, so check that out for specifics. But to summarize, home values are still rising. They’re just expected to rise at a slower rate than they have been. This isn’t a crash, and to suggest that what is happening now is even remotely similar to 2008 is disingenuous. Home values have been rising, as you can see here. The market is definitely hot, and it eventually has to cool down. That’s normal and good. Unsustainable growth over a prolonged period of time would be detrimental. Homes are not expected to lose value, but to continue growing, just at a more sustainable rate. If three months ago, you practically had to offer your firstborn to get a seller to accept your offer, today you only have to give them one of your kidneys. Lawrence Yun has said that home prices are in no danger of decline, but appreciation should cool off by the end of the year. So if you’re thinking of buying, homes will only continue to get more expensive, and interest rates are only going to increase, which means waiting will cost you. We also covered interest rate projections in the July, 2021 video, and the consensus is they will rise between 3/4 to 1% over the next year. Again, see that video for specifics. The ultra-competitive market conditions has resulted in some buyer fatigue, which has resulted in slightly less demand. You can see buyer traffic has been gradually decreasing on this map. The dark blue, which covered most of the nation in April, has given way to a lot more lighter blue in June. Note that the lighter blue still indicates strong buyer traffic, so it’s not like demand has dried up. The fact that we’re still seeing double-digit year-over-year appreciation and strong buyer showing traffic indicates that it’s still a competitive market. But overall, there is more opportunity for buyers today than there was a few months ago. Lawrence Yun has pointed out that we’re seeing fewer multiple offer situations today than we were just a few months ago, but that doesn’t mean the market has crashed or that we’re now suddenly in a buyer’s market. It’s still a strong sellers’ market, but sellers should take care to price their homes appropriately, as demand is beginning to taper. We should also notice a few significant differences between the market today versus where we were prior the 2008 bubble, and then we’ll turn to the local Burr Ridge, Hinsdale, & Oak Brook markets. The chief economist at CoreLogic has rightly pointed out that the issue in 2008, which we are not seeing today, was the prevalence of risky loans and negligent lending practices. Lenders are being much more responsible today than they were in 2008, which is good for the overall health of the market. One of the biggest challenges I’ve seen on my listings hasn’t been finding a buyer, but getting the value to appraise when buyers are willing to pay a premium. Lenders are pushing back on values and exercising more caution in lending today than they were before the crash. And while that may be frustrating to sellers in the short term, it’s good for property values and the health of the market overall. You can see that in 2006, there were over 5x more loans being generated for buyers with a credit score below 620 than there are today. That’s a decrease of over 80% and a clear example of more responsible lending practices. Buyers today are more well-qualified and lending standards are stricter than they were. Let’s also look at this chart showing the availability of mortgage credit. Today, it’s almost 7x harder to get a loan than it was before the crash. Credit is not as available and as easy to come by as it was in 2006. The current appreciation we’re seeing in the market isn’t due to negligent lending practices but is being driven by supply and demand. The lack of inventory has created low supply, and the low interest rates and desire for better housing, especially as a result of the pandemic, have kept demand high. One final, significant point about economic stability today versus where we were during the bubble. Mortgage payments today represent a much lower percentage of overall consumer debt than they did during the crash. In fact, you have to go back to before 1980 to see levels of consumer mortgage debt this low. Mortgage payments represent a lower percentage of debt for homeowners than they have in decades. And equity, as we covered in the July market update, is higher, which means that if someone needs to sell, there’s very low risk of their home becoming a distressed property and going into foreclosure. We are not only not in a bubble, there is room for the housing market to appreciate in months to come. Mark Fleming went so far as to say that housing is actually undervalued in many markets, if you can believe that. So no, we are not in a bubble. Not even The Motley Fool believes that. The issue is supply and demand. What we really need is for the builders to step up and increase the rate of production. I know supplies have been expensive and labor has been difficult to come by, but as you can see, current production of new homes is at a 50-year low. The pandemic has made having a great home more important than ever, and between the demand, low inventory and interest rates, and lack of new construction, there just aren’t enough homes for sale. Turning to the local market, we’re going to compare inventory, percent of asking price received, and overall market time in Burr Ridge, Hinsdale, and Oak Brook. Finally, we’ll compare home values in these markets to see who’s doing the best. So first up, inventory. It’s striking when you look at what happens to the supply right around the start of the pandemic and continuing to this day. Things were going along steadily and even increasing a little, and then it falls off the cliff. Hinsdale has the lowest supply at 4 months, Burr Ridge is second at 5 months, and Oak Brook is just below 6 months. Before the pandemic, most of these markets were around 10 months. For context, 6 months’ supply is considered a balanced market, with anything lower being a sellers’ market and anything higher being a buyers’ market. Of the three, Hinsdale currently has the strongest sellers’ market in terms of inventory. The next chart is percent of asking price received, and this is about what you’d expect based on inventory. Oak Brook has the highest inventory, so they are getting a slightly lower percent of asking price, just about 94.5%. Burr Ridge and Hinsdale are currently both getting a median 95.5% of asking price. While Hinsdale has lower inventory, Burr Ridge’s prices are lower than Hinsdale’s, so that may explain why they’re getting the same percent of asking price despite having slightly higher inventory. As inventory increases and the market becomes saturated with listings, that makes for more competition among sellers and typically allows buyers to get more of a discount. Another agent was recently speculating that maybe Burr Ridge agents have been more effective than our Hinsdale counterparts, but I don’t think that’s the case since many top agents in the area end up serving both markets. I think the more likely explanation has to do with affordability and property values. This last chart shows median time on market in Burr Ridge, Hinsdale, and Oak Brook. And again, Hinsdale is the winner at only 49 days, Burr Ridge next at 74 days and Oak Brook just one day higher in 3rd place at 75 days. The lower market time in Hinsdale is no surprise since of the three markets, they have the lowest inventory. That makes for more competition among buyers, driving down market time and driving up prices. All throughout this video we’ve been coming back to supply and demand, so it’s really important when you’re thinking of buying or selling a home to have a handle on the current supply of the market you’re in or considering. The data shows that while the three markets are close, Hinsdale currently offers the most opportunity for sellers and Oak Brook the most opportunity for buyers. Finally, we want to look at median sale price in these three markets and see who’s doing the best. You’ll notice Burr Ridge has been the most consistent, increasing every year, going up 3.3% in 2020 from 2019, and increasing again in 2021 by a massive 13.7% over 2020. Hinsdale actually took a step back in 2020, dropping 2.7% from 2019, but then coming up 7.3% in 2021. Based on the previous charts, Oak Brook is the clear underdog. They’ve had the highest inventory, and yet their home values have increased more than the other two, increasing 3.8% in 2020 and another 19% in 2021. This is unexpected given their higher supply, but it serves as a nice illustration of the fact that markets aren’t always rational and don’t always behave as expected. There is definitely an art to pricing a home, though that art is informed by science. Market irrationality is all bad, either. Sometimes you can use that to your advantage, whether buying or selling. I recently sold 364 Kim Trail for $410,000, despite the comps all being at or below $375,000. In this case, we clearly took advantage of market irrationality and used it to our benefit to the tune of $35,000 or more. On the purchase side, sometimes you can get a really great deal on a home for below market value, even if the comps are higher and inventory is low. Sometimes you get a motivated seller who’s more interested in being done with the home than in maximizing profit. So there you have it, that puts a wrap on our August, 2021 market update. If you’re thinking of buying, selling, or relocating to Chicago or the suburbs from out of state, I’d love to help. I’m Eric with Eric Andersen Homes, here to remove the headache from real estate and provide expert guidance for your next purchase or sale.