The average cost of new homes sold in Chicago remains stable at $439,521 in Q1
Despite falling home prices across the United States due to lingering effects of the pandemic, Chicagoland home sellers have discovered innovative ways to maintain high prices while still assisting buyers. In the first quarter, the average price of new homes sold in Chicago was slightly above $439,500, a number that has remained relatively unchanged since its 11 percent increase to $439,100 from $395,400 in the first quarter of 2021. This information comes from a Crain’s report that references data gathered by consulting firm Tracy Cross & Associates.
One significant factor contributing to the sustained elevated prices is the use of interest rate buy-downs by developers. This strategy enables builders to pay a portion of a home’s cost upfront, thereby reducing the interest rate and essentially offering a discount on the property without altering the official asking price. In doing so, buyers are spared from the higher costs associated with financing a home purchase today, as debt expenses continue to rise.
The buy-down tactic has become increasingly popular, particularly as mortgage rates have climbed above 6 percent since September. Builders have discovered that if they can buy down the rate to around 5.5 percent, they can attract more buyers, hitting the sweet spot in the market. By making monthly mortgage payments more affordable, builders can support the continued demand for new homes in Chicago.
A December study by a major real estate research firm revealed that 75 percent of builders across the nation were using buy-downs, even in areas where prices have dropped in many major markets. This indicates that pricing corrections have not yet compensated for the higher cost of debt resulting from interest rate hikes. The use of buy-downs highlights the flexibility and adaptability of the real estate market, as developers and builders strive to meet the needs of buyers amid changing economic conditions.
Minimal inventory has also played a role in preventing a price decline in Chicago. By late March, the city’s median asking price had reached a record high of $333,500, largely due to the limited availability of just 5,160 homes on the market. This figure represents a 17 percent decrease from the 6,220 homes available one year prior. The low inventory levels have created a competitive market, driving up prices and making it more challenging for potential buyers to find affordable housing.
In the first quarter of this year, 1,169 new homes were sold in the Chicago area, representing a 30 percent decline from the same period in 2022. However, the 2,272 single-family homes that were sold in Cook County in March generated a total of $944 million, compared to the 1,399 deals worth $549 million in the previous month. This increase in sales volume can be attributed to the beginning of the spring season, a traditionally active time in the real estate market. The rise in sales demonstrates that despite the challenges posed by the pandemic and rising interest rates, the Chicago housing market remains resilient.
In conclusion, the Chicago real estate market has managed to maintain elevated home prices through the use of interest rate buy-downs and a limited housing inventory. As builders and developers adapt to changing market conditions, they continue to find ways to support the demand for new homes while assisting buyers with financing options.
Tom Dudzinski, Designated Managing Broker
Illinois Star, Ltd., REALTORS®
IllinoisStarRealtors.com
(847) 647-4000