Whether you were born and raised in Chicago or are moving to the third-most populous city in the U.S. for the first time, know that the real estate market both echoes housing trends and deviates from them.
The Chicago rental property market presents a promising opportunity for investors. The city’s diverse neighborhoods and wide range of housing options cater to various tenant preferences, driving demand are the key housing trends. Combined with ongoing population growth, this dynamic ensures a robust and expanding rental market poised for long-term success.
If you’re looking to buy, sell, or rent a home in Chicago or its surrounding suburbs, it’s best to know what to expect before you start. Here are seven key housing trends attracting real estate investors to the Windy City.
1. Prices Are Rising, But Not Unsteadily
Chicago’s housing market has seen steady price growth, albeit at a slower rate compared to smaller metro areas. The median home price in the Chicago metro area was $270,000 in February 2021, a 12.5% increase from the previous year. This growth is driven by low inventory, as many homeowners are not interested in selling, and new construction is not keeping pace with demand. Despite the rise, prices are not expected to exceed appraised values significantly, making it a stable investment environment.
2. Fierce Buyer Competition Outside of Downtown
While downtown Chicago has seen a decrease in homebuyer and renter activity, residential neighborhoods outside the city center are experiencing fierce competition. Properties in these areas often receive multiple offers shortly after being listed. Investors should be prepared to act quickly and compete with other buyers, particularly in neighborhoods with houses, townhouses, and small condo buildings.
Strong Demand Drivers
Several factors contribute to the strong demand in Chicago’s rental market:
- Economic Growth: Chicago is a major financial hub, home to numerous Fortune 500 companies, thriving industries, and a robust job market. This economic vitality attracts professionals from various fields, increasing the demand for rental housing.
- Educational Institutions: With esteemed universities like the University of Chicago, Northwestern University, and DePaul University, the city attracts a large student population. These students often seek rental housing, creating a steady demand for properties near these institutions.
- Cultural and Recreational Attractions: Chicago’s rich cultural scene, renowned dining, shopping, and entertainment options, and extensive public parks and lakefront areas make it an attractive place to live. These amenities draw both locals and newcomers, further driving the rental market.
3. High-Rise Buildings Are Seeing More Vacancies
High-rise apartment buildings and condo communities in downtown Chicago have higher vacancy rates due to the COVID-19 pandemic. Many residents moved out of these dense living spaces for more room and less interaction with others. Investors looking for deals may find opportunities in these properties, with potential incentives such as free rent or waived fees to fill vacancies. However, these offers may not last as the market stabilizes.
4. Square Footage and Outdoor Space Are Driving Sales
The demand for larger living spaces with more rooms and outdoor areas has increased, reflecting nationwide housing trends. Homebuyers in the Chicago area are seeking properties that can accommodate home offices, virtual classrooms, and private outdoor spaces. This shift towards home-centric living is expected to persist, even as remote work arrangements evolve.
5. Renewed Interest in Dense City Living Hinges on Entertainment
As more people return to in-person work and social activities, there is renewed interest in living in densely populated areas. However, the draw of urban living is more closely tied to the availability of entertainment, dining, and nightlife than employment opportunities alone. Investors should consider properties in neighborhoods with vibrant cultural and social scenes, as these areas are likely to see increased demand.
6. Suburban Appeal with Small Downtowns
For those considering suburban investments, areas with small, self-sustaining downtowns are particularly attractive. These suburbs offer the amenities of urban living without the density and traffic of the city. However, development in these areas is slower, and finding prime sites for new construction can be challenging. Investors should focus on established communities with strong local amenities.
7. Chicago as an Ideal Investment for People from Pricier Metros
Chicago offers relatively affordable housing options compared to other major cities, making it an attractive destination for investors from more expensive markets. The city’s strong job market, cultural richness, and stable housing prices provide a compelling investment case.
Additionally, Chicago’s diverse neighborhoods offer a range of opportunities for different types of investments, from single-family homes to multi-unit properties. For investors, Chicago’s rental market offers numerous opportunities:
- Value Appreciation: With continuous demand, property values in desirable neighborhoods are likely to appreciate over time. This presents potential for capital gains in addition to rental income.
- Renovation and Development: There are opportunities for investors to purchase properties that need repairs or modernization. Renovating and updating these properties can increase their value and rental income potential.
- Strategic Locations: Identifying up-and-coming neighborhoods or areas undergoing revitalization can yield high returns. Investing in these strategic locations before they fully mature allows investors to capitalize on future growth.
Conclusion
Chicago’s housing market presents a unique blend of opportunities and challenges for real estate investors. With rising prices, fierce competition outside of downtown, and a renewed interest in urban living driven by entertainment and amenities, investors need to be strategic in their approach. Understanding the current housing trends and key market factors can help investors make informed decisions and capitalize on the opportunities in this dynamic city.