The Chicago market is quite fascinating. According to the OFHEO 4Q 2005 Report the 5 year price appreciation for homes in the Chicago area was 49% and the one year rate stood at 10.6%. Chicago's price appreciation rate is strong but not stratospheric like many metro areas in California or Florida. Like many other parts of the country job and wage growth over the past five years has been anemic (weak). The price appreciation rate is quite varied depending on the neighborhood and type of property.
The Chicago Tribune had this to report:
The Chicago area fared only slightly better, with single-family sales down 4.8 percent from January 2005 and condo sales down 2.8 percent. ....
They jumped by 11.5 percent in the Chicago area, to a median $234,000 for single-family homes. Chicago condos went up 8.2 percent, to a $211,000 median
In the Chicago area the Multiple Listing Service of Northern Illinois said it could not track year-over-year inventories, but reported that 22,560 homes and condos went up for sale in January, up from 18,337 new listings a year earlier.
In the past few months the Chicago residential market has declined in terms of sales, while at the same time the inventory has increased substantially. The Chicago Real Estate Bubble Blog is reporting that "Inventory crossed 100K for the first-time in Chicago area." While driving around the northern suburbs there was lots of inventory available for sale.
The condo market is weaker then the single family housing market. Condos have sprouted like weeds in the metropolitan area.
Deerfield real estate agent Honore Frumentino described the current market as "strange."
"On the very high end, we have two and three and four years of inventory on the North Shore," Frumentino said. "The break point is $3 million. It's really tough over $3 million. That's where the air gets really thin on the North Shore.
"I think it's the same in the western suburbs, where a lot of stuff in the $1 million to $3 million range is just sitting."
The pictured under construction house is located in an unicorporated area between Winnetka and Willmette not far from Deerfield. These suburbs are very wealthy areas along the north shore.
So what will happen with prices in the next 3 years? Is Chicago a bubble market?
Overall I do not think the Chicago metro area is a bubble market. The typical houusing unit is unlikely to decline in price by 20% in real dollars from its peak price in the next 3 years. However, condos especially in the city itself are likely to fall by over 20% in real dollars within 3 years. Certain 'hot' neighborhoods that have experienced very strong price appreciation may fall more then 20% in real dollars. Chicago, is certainly not bubblicious like San Diego, nevertheless declining real prices will be a reality for the Chicago metro area in the coming years.