The Current State of the Real Estate Market In Chicagoland: Five Assumptions of What's Going on
The National Association of Realtor published a report on April 1, 2019. In a nutshell, consumer confidence is high, GDP 10 years of growth. Unemployment just below 4%. Job growth in Illinois Feb 2018 to 2019 is 1-2%. Mortgage rates continue to be low around 4.25%.
When you hear this, you should think things are moving, the Chicago market is back! People are confident, they have jobs, they should feel secure, these numbers should translate into a market where homes are selling and people will make decisions to move. Agents are telling people to put their homes on the market because if you do, it will sell! “Heck there IS a shortage of homes!” Last year, buyers didn’t have enough to choose from. Let's give them what they want! Okay, everyone list your home. If you put these stats in a chart, it would appear to have all the elements of a bountiful real estate market! WOO HOO, sign me the heck up!
Inventory increasing should help buyers buy. Do I think that is true? Yes, an increase of inventory gives confidence to buyers. If they have something to SELL at the same time they BUY, there is more to choose from the market will start being more active. Most sellers do NOT want to list their home if they are fearful that they cannot find something to buy. It also gives variety to buyers and brings first-time buyers into the market, “Ohhh, ahhhh, lots to choose from!” Not so fast lady, let me tell you how it’s shaking out.
Home Sales - A look into the real estate market
Homes are selling, but which ones? Mainly the homes that match today’s trends, colors and finishes almost 100% . They are the “razzle dazzle" homes. Other homes aren't doing as well - the ones that people have lived in and loved, who have raised families in and may be a decade out of finish. Homes that need a little paint, a new light fixture, and maybe a new bathroom faucet - those ones may sit. ….. and sit…...and sit.
Why now more than ever? Millennials will make up 45% of the new home buyers (according to NAR in 2019) coming into the market. After talking with many agents and lenders over the last few weeks, there could be multiple things on converging paths.
1. They may only buy one home in their lifetime
You know us Gen Xers, we bought our first starter home, then maybe a step up home, then a retirement home. Millennials are buying their first home at a later age (average 32 in 2017) and may not be thinking of leaving that home, this home will be it. For them, it has to have the bells and whistles, while a previous generation full of gumption and “do-it-yourselfers” were open to tackling any potential renovation that you could throw at them. Millennials are less interested. It’s not that this is bad, this is how this generation is choosing to live and this is the market to sell.
2. They don’t have the money. Period. Nothing to explain
They don’t have it. Wages have not kept up with home prices, so their salaries cannot support the median sale price. They also have student debt. A lot of it. More than Gen-Xers ever did. I just went to Home Depot to look at flooring for the flip in St Louis and got to talking with the countertop employee. She said her daughter and husband are looking for homes but cannot find any that they can get pre-approved for. They both have crushing student debt and want to buy a home, but the prices are too high for what they can afford.
3. The desire for home ownership is less
I don’t have any statistics readily available, but there is a sense of not wanting to own or maybe after reflecting on #2, it’s apathy. They know it isn’t possible financially, so they put it out of their mind. Owning comes with home-related responsibilities like lawn care, tax bills, and being tied down to one place. Millennials are possibly not as jazzed about these responsibilities, but truth be told, who is?!
4. a Lack of home ownership knowledge
I’ve had lenders tell me many of their first-time buyer applicants don’t have credit because their parents still pay many of their bills or that they haven’t been exposed to things like younger generations were. They just don’t know what a mortgage payment is composed of. Similarly, if you are around friends who don’t own or partake in home ownership, you may be less likely to sniff it out.
5. The Price of buying a home - the elephant in the room
Do you realize that the people who are selling the larger outdated homes are often older people who are now downsizing to buy the same home the fist time home buyer is buying? What does that do to the lower price brackets? It creates competition - specifically for condos! Watch out, you and grandma may be in a bidding war. And millennials are smart, conservative and frugal shoppers. Trust me on this...
It doesn’t matter to me what one generation does or does not do, I just want to know how to SELL TO THEM. And you should too. It’s important to understand this generation will have the largest population of buyers in 2020.
As a seller, think about your audience, think about your finishes. As you notice homes come on the market in your area, ask yourself, “If my home was up against that home, would I win?” Because ultimately, that is how buyers think. “I have a bucket of money, what can I get for this bucket”. It is very competitive right now. I used to think I can price around anything. Now I’m wondering at what price will millennials be able to buy?
I will show you my own story of flipping a home in St Louis. Pre-renovation, this home’s only market is to a flipper. Estimated sale price $110,000. The estimated sale price after we invest $45,000 in full gut kitchen renovation is potentially around $199,000. So if the delta between the two numbers is $89,000 and only costs us $45,000, then we have to do it. We can cover commission, closing costs and the note on the home and recoup our entire investment. We cannot afford for the flipper to make the margin, we’d rather do it ourselves. These are the kind of custom home choices people have to make. Invest for yourself or allow others to take the profit. There is no right or wrong in this. And remember, there is a price for everything and everything will sell!