The Real Deal Chicago

Chicago’s expensive home market grew in August; Its starter-home market did not

Low inventory is still plaguing the entry-level housing market, a new study shows

By Joe Ward | September 20, 2018 09:00AM

Aerial view of densely populated Chicago (Credit: iStock)

Sales of homes valued at $500,000 or above grew substantially in August versus the same time last year — but is that a good sign for the local housing market?

According to one analysis, it’s not.

That’s because the boost in pricier home sales in the Chicago area came at the expense of more moderately priced home sales, which declined in August, according to a market analysis by Re/Max.

In August, there were 1,468 houses sold at a price of $500,000 or greater, which was a 4.4 percent increase year over year, according to Re/Max, which looked at home sales in the seven-county metropolitan area. But for home sales of less than $500,000, there was a decrease of 2.6 percent over last year, with 9,953 such homes sold in August.

The increase in more expensive home sales could be seen as a boon to a slagging market, which has seen ultra-expensive listings languish on the market even as the area sets new price records for home sales.

But the August numbers highlight another trend: the lack of inventory at the starter-home level.

“Demand for entry-level homes and moderately price homes is strong, and sales are being inhibited by a lack of inventory,” said Jeff LaGrange of Re/Max’s Northern Illinois Region. “In the upper brackets, there is ample inventory, and many homes struggle to find buyers.”

Low inventory, especially at the starter level, have been hampering housing markets across the country, and Chicago is no exception. In July, shrinking inventory led to the biggest drop in sales volume in two years.

There was 2.6 months supply of homes listed at less than $500,000 at the end of August, according to Re/Max. For homes listed at $500,000 and above, there is a 6.9 month supply. A six-month supply is generally considered a healthy market.

More expensive homes sales might have posted stronger gains in August but they stayed on the market nearly twice as long as moderately priced homes. Homes at $500,000 or more had an average market time in August of 102 days, compared to 57 days for cheaper homes, according to Re/Max.

Though sales of more expensive homes increased in August, homes in the luxury end of the local market have had to take price cuts to lure potential buyers. A July report from Re/Max on home sales above $1 million showed their median price has fallen by 8 percent since 2012.

Total home sales declined by 0.7 percent in August year over year, and median sales price rose by 2.1 percent, Re/Max reports.

Kendall County saw the biggest increase in sales activity, with a 9.1 percent boost year over year. Chicago proper saw a 2.4 percent drop in total sales year over year.