Chicago’s ultra-luxury market withstands broader slowdown

Deals over $4 million are set to keep up with the frenetic pace set in 2021

Compass' Melanie Giglio-Vakos and Keller Williams' Tommy Choi (Chicago Realtor, Compass, Getty)
Compass' Melanie Giglio-Vakos and Keller Williams' Tommy Choi (Chicago Realtor, Compass, Getty)

As rising interest rates clamp down the flow of home sales, agents with a hand in the priciest segment of the market such as Tommy Choi aren’t feeling the pinch.

It’s a pattern visible in the city, where two condos have sold at or over $20 million this year, pricey urban markets like Lincoln Park and Gold Coast, as well as in the suburbs, where several North Shore homes set neighborhood records.

It’s a paradox of the current market: As interest rates creep higher to battle inflation, slowing the housing market, the top end of Chicago’s single-family residential market has stayed consistent.

Three factors have combined for a “perfect storm” to send the ultra luxury market surging, said Choi, co-founder of the Weinberg Choi Residential team at Keller Williams. Cash-rich buyers are unconcerned with interest rate hikes, more working professionals are hitting the apex of their careers and moving to upgrade their housing, and buyers are more likely to put more toward real estate investments when the stock market takes a dive.

“Part of that ties also into affordability not just from a homeownership standpoint, but affordability in cost of living,” Choi said. “I eat out a lot, and when I’m out the majority of the week, I’m dining in packed restaurants. Even with 8 percent inflation rates, people are still out there spending money.”

The Chicago area offers more bang for a buck compared to luxury real estate in other big cities, which, with inflation raging, could have drawn an outsize proportion of buyers in that segment of the market this year. Nationally, luxury home sales fell more than three times faster than the market as a whole when interest rate increases started to hit in the spring while inflation remained high, according to a June study by Redfin.

“The (Chicago) ultra-luxury market is attractive because, I think relatively speaking to Manhattan, the Bay Area, Los Angeles, even southern Florida, what you get is relatively more affordable,” Choi said.

Still, it’s unclear if deal volume this year will surpass 2021’s smoking hot seller’s market. Despite a consistent flow of sales, many sellers have accepted price cuts from their asking marks, even on record-setting properties.

That’s held true at the very top of the market, where this year’s priciest deals, including the $20 million Trump Tower Chicago penthouse sale that was cut from a $30 million list price, have undergone substantial shaves. In the Gold Coast, a 10,000-square-foot Beaux-Arts style mansion sold for $7 million, almost half the $13.5 million asking price when it was listed two years ago.

The same dynamic is playing out on the North Shore’s suburbs, where a $16 million listing of a century-old lakefront mansion eventually closed for $12.75 million.

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Yet Chicago’s high-end market has maintained enough strength that it’s just a hair behind last year, when the housing market was so hot many brokers view the period as not replicable.

Within city limits, 66 sales closed at $4 million or more last year, according to the Chicago Association of Realtors — that’s the price benchmark the group considers ultra luxury properties. Through September, there’s been 48 such sales in 2022, putting this year slightly behind last year’s pace by four sales, or a 7 percent clip.

This year also far exceeds pre-pandemic luxury sale levels. In 2020 only 26 sales were in the same category, and in 2019, which offers the last full year of data before the health crisis, only 38 sales were at or above the $4 million rung.

The rest of the market has slowed more significantly. The number of homes sold in Chicago was down 24.4 percent in September compared to the same time last year.

“Prices and the number of sales have both continued to decline since their peak in June, while foreclosures are increasing,” Daniel McMillen, head of the Stuart Handler Department of Real Estate at the University of Illinois at Chicago College of Business Administration, said of the market as a whole.

While there are challenges pricing the ultra luxury market — in which homes are often custom built and finding comparable sales can be near impossible — deals are being made and agents aren’t short of assignments with homes still finding their way to the market.

Melanie Giglio-Vakos, a Compass agent who recently listed a $7 million new construction home in Glenview on a private listing network, said she’s shocked by how much interest the home has garnered, given it’s not even publicly listed.

The highest end of the market won’t falter in the coming months while the rest, which is more reliant on buyers having ability to borrow, will catch up in the second and third quarters of 2023, she said.

“The ultra luxury single-family market hasn’t really been affected. I don’t think prices are going to go down,” she said. “I don’t see any decrease in value, and I don’t see how there could be any.”

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