Rare Two-Fisted Punch Smacks Chicago Real Estate Market
Rising prices and interest rates made Chicago homes less affordable in March than they’ve been
at any time in the past 17 years, and probably longer.
A monthly index of affordability that the Chicago Association of Realtors (CAR) released last
week for March shows the affordability of houses in the city hitting the lowest point in the
group’s data, which stretches back to January 2007. Since rates rose in recent months, it is likely
the lowest point in many years before 2007 also.
CAR’s index tracks the relationship between median household income and the median-priced
home under prevailing interest rates. If the index is at 100%, it means the median household
income would fully qualify for the median-priced home. A higher figure means homes are more
affordable.
In March, the affordability index was 73%, the lowest it has been in the 17 years and 10% below
the index for March 2023, a steep drop precipitated by increases in the two major components.
The median price of homes sold in the city in March was up 7.3% from the same time a year
earlier. And interest rates, though they have been fluctuating, were generally about a half-
percentage point higher last month than in March 2023.
The phenomenon of rising prices coming hand in hand with recent highs in interest rates is
confounding the Federal Reserve’s effort to get inflation under control by increasing the cost of
borrowing.
“The Fed keeps trying to tame inflation with rate increases,” Glenn Kelman, CEO of online real
estate marketplace Redfin told Fortune last week, “but at least one sector is untamable, and that
is housing.”
The inventory of homes for sale is also at an all-time low, but people still need to buy homes, to
relocate or accommodate a growing family. These buyers are moving ahead with purchases
despite having to pay way over list price to get a house and swallowing an interest rate that is
more than twice what it was 3 years ago.
No Surprise: Home Sales Plunge
Home sales in the Chicago area dropped steeply in March, pressed by a trio of troubles: low
inventory of homes for sale, fast-rising prices that undercut affordability and high interest rates.
In Chicago, the number of homes sold in March was down 18.9% from a year earlier, according
to data released today by the Illinois Realtors trade association, and in the nine-county
metropolitan area, sales were down 14.1% in the same period.
In both cases, February had shown sales gains, likely reflecting optimism that interest rate relief
was coming. But with inflation not yet tamed, the Federal Reserve has been stalling on rate cuts,
most recently saying the first cut likely won’t come until November at the earliest.