The recent surge in inflation has touched every aspect of our lives, increasing the cost of household goods, food, and even the cost of rent. In fact, rents are climbing fast in Chicagoland, with rent in Chicago increasing by 11% over just 5 months, and rents climbing by more than 10% in Chicagoland’s suburbs.
These rapid increases in housing costs have many Chicagoland residents asking whether now is the time to pull the trigger on purchasing a home. After all, homeownership offers long-term stability in housing costs and can help homeowners to generate long-term wealth. However, homeownership is not without its risks and downsides. For Chicagoans, with rents climbing and showing no signs of abating anytime soon, is this the right time to make the move to home ownership? Read on to learn more about what experts have to say and what homebuyers should consider before purchasing.
Are Higher Rents An Inevitable Fact Of Life?
The median rent for a one-bedroom apartment in the city of Chicago is $1,950, up a whopping 37% year-over-year for the city, according to rental listing site Zumper.com. These rising rents are driven by a number of factors: most significantly, inflation has driven up the cost of most everything we spend money on, including housing. But rental rates in Chicagoland are also being driven north by an increasing post-pandemic demand, as shuttered shops, restaurants, and theaters come back to life and demand for housing within the city increases. Adding to this general increase is the initial wave of Gen Z renters looking to get their own first places as the pandemic wanes.
All of this increase in demand has combined with a slower pace of construction to send rental rates soaring. According to Crain’s Chicago Business, class A rents in downtown Chicago jumped by almost a fifth in the first quarter of 2022, to an average of $3.55 a square foot. However, only about 1,500 class A apartments came onto the market during this time, with occupancy rates climbing to 94% from 91% a year earlier.
This rising tide of demand has collided with the unprecedented supply chain shortages caused by the pandemic and the war in Ukraine to create conditions where demand for housing far outpaces the available supply of rental units. Although builders are doing their best to increase the available supply of housing, it seems as though higher rental costs are likely to be with us for some period of time.
Is This A Good Time For Renters To Consider Buying?
Those looking to stabilize their housing costs and add predictability to their monthly budgets are increasingly considering homeownership as an alternative to renting. However, home ownership is also a complicated proposition. Although last year’s torrid pace of home sales has slowed somewhat, home prices are still climbing in the Chicagoland market. Over the past year, Chicagoland home prices have increased by nearly 9%, and although the market has been projected to cool somewhat as interest rates increase, the fundamentals of the market — a demand for housing that exceeds available supply — are expected to remain strong, driving a continued increase in home prices.
What Should Potential Buyers Consider Before Buying A Home?
Although larger market forces play a role in the decision to buy a home, the choice is — and should remain — largely a personal one. Closing on a home is costly. Buyers must be prepared to pay closing costs which can total up to 2-5% of the home’s value. These costs can include:
- Credit report fees
- Payments to a title or escrow company who will manage the sale and closing
- Loan origination costs
- Attorney’s fees
- Title search, land surveys, and lender’s title insurance costs
- Transfer taxes
- Property taxes
- Appraisal and home inspection fees
- Homeowner’s insurance
- Mortgage insurance, if you are not making a 20% down payment
These costs can run into thousands of dollars, and mean that a home purchase should not generally be undertaken as a short-term investment. Homebuyers should consider their long term goals regarding location and neighborhood, career, and family planning before deciding to enter into a contract on a home purchase.
Buyers must also consider their own personal purchasing power, including both the amount they can afford to spend on the home, but also their own creditworthiness, as the interest rate on a mortgage loan can significantly change a home’s affordability. Buyers should ensure that their credit is in top shape before considering a purchase, especially as overall interest rates continue to climb and lenders adjust their risk tolerance to match the new market.
Understanding the local real estate market is also key. Although national or even Chicago-area trends are important, markets can vary neighborhood-by-neighborhood, and sometimes even block-by-block. Undertaking research to understand a desired neighborhood’s characteristics, including speaking to locals, finding a real estate agent with local expertise, and reviewing sales of similar properties in the neighborhood can all help position buyers to know what to expect as they undertake a major investment in a home.
When Home Means More, You Need a Team With More to Offer
Home is about so much more than just four walls. Buying or selling a home is a big deal, and with a market that seems to change daily, our homes have never been more important. That’s why your local Baird & Warner agent is with you at every step of the way, from finding the perfect home to connecting you with local experts in mortgage and title. Whether it’s the beginning of a story or the end of a chapter, we’re here to help.