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Housing Institute Director Forecasts Chicago Real Estate in 2018

Geoff Smith
Geoff Smith, executive director of the Institute for Housing Studies

Will the 2018 local real estate market be like January in Chicago—frigid? Or will it be like a Chicago summer—hot and steamy?

We asked Geoff Smith for his forecast. As the executive director of the Institute for Housing Studies (IHS)at DePaul University, Smith oversees the IHS’s research into the dynamics of neighborhood housing markets, which the institute shares with a broad range of housing policymakers and practitioners. Smith’s current IHS work focuses on neighborhood stability and the preservation and development of affordable rental housing. 

What is the real estate forecast for Chicago for 2018?

In general, IHS research has shown  that Chicago house prices have grown in recent years, but the rate of growth can vary substantially depending on where you live. As a region, Chicago’s house prices have grown at slower rates than other big cities across America. I expect that trend to continue in part because the city of Chicago and surrounding region has had slow population growth and fairly modest economic growth—two factors that drive demand for housing. Because demand for housing is relatively flat across the region, you would expect the price curve to be relatively flat. However, we have seen some neighborhoods in the city that have high growing demand and strong price appreciation. Region wide, I expect the market to lag other parts of the country, but there will be pockets in the Chicago area that will perform quite well. 

Who will benefit in 2018, the buyers, sellers or renters?

One of the key housing trends from the last 10 years is continued growth in demand for rental housing. It has fueled substantial investment in the development of new rental housing, but also created an affordable rental housing crisis in parts of Chicago and cities across the country. However, recent data indicate that the growth in Cook County’s rental housing demand started to plateau in 2015. In the coming years, it will probably continue to flatten out. This may take some pressure off rent increases in some areas. Additionally, rents may have become high enough in many neighborhoods that a growing number of renter households may consider buying instead.  

On the homeownership side, we have seen a plateauing of home prices in many of the area’s highest cost neighborhoods. This points to a flattening of demand or an oversupply of housing at higher price points.

What are some of the emerging trends in real estate for 2018?

When looking at large cities, Chicago house prices are growing at a slower rate, but it is also a more affordable city than other places on the east and west coasts. As people debate the pros and cons of Chicago as the location for Amazon’s second headquarters, affordability is generally considered to be one of Chicago’s key assets. As tech and other companies look to expand away from high-cost costal markets, it will be interesting to see if what role housing affordability plays in their location decisions and if Chicago will benefit.

How does crime affect the real estate market?

Crime can be an impediment to investment, but many of the neighborhoods in Chicago with the highest levels of violent crime are areas that have suffered from segregation, redlining, disinvestment and long-term population declines. Crime is a symptom of a broader set of challenges facing these neighborhoods. There are no easy solutions, and turning these areas around requires a long-term, comprehensive and equitable strategy to reinvest in those neighborhoods. 

Where are the hot neighborhoods in Chicago in 2018?

Based on our analysis of recent house price trends, neighborhoods with access to key location-specific amenities like public transportation, the Loop, Lake Michigan and quality schools have exhibited some of the largest recent house price increases. Investors often look for areas with an alignment of these characteristics with still affordable prices. The risk of “hot neighborhoods” is that increased demand from investors and higher-income households causes house prices and rents to increase. This, in turn, puts pressure on lower-income residents, particularly renters. Much of our recent work has focused on using data to proactively identify these neighborhoods and support policy development that minimizes displacement.   

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