Before I get to my projection on Chicagoland home prices for 2023, let me first give a recap on 2022. We went from 3% (mortgage) interest rates in January to 7% in September. They more than doubled, and because of that, demand from buyers materially weakened. Closings in October were down 32% year over year. That is not necessarily a bad thing though. The number of homes that have been available over the last 2 years has been acutely low. That is why prices shot up so fast. There was an imbalance, and the issue was too much demand and too little supply. Now that demand has been reduced, the amount of supply can build to more sustainable levels.
You’ll hear of reports of prices going down on a month over month basis but that is not a fair way to look at it. In the fall and winter, that is common and expected. Prices decrease in the fall and winter and then rise in the spring and summer. That is the real estate cycle in the Midwest. See the below median sale price in Chicagoland over the last 5 years. The dotted line shows you the trend from 2017 – 2019 and notice how high prices are now over that trend line. I like to look at 2017 – 2019 because it was a balanced market in Chicagoland during that time frame. The three graphs that are included in this post were from our Royal Family Real Estate Annual Meeting we had this last week.
Inventory is on its seasonal decline and will continue to do so until January / February. Then in March, you will see inventory start to build as sellers list their homes for sale. The below graph shows the trend line from 2017 – 2019 and how low inventory is now compared to then.
Ok, so the crystal ball. I feel we will see another strong spring market in 2023 and that will come to an end at the end of May (Memorial Day weekend). After that we will see inventory accumulate as the supply will outweigh demand. These past couple of years we have seen inventory lower on a year over year basis. Next year I feel inventory will be growing on a year over year basis. Homes will be on the market longer and price reductions will be more prevalent. For the full year in 2023, I think prices will decline 5%.
The above prediction is assuming interest rates remain at 7%. If they go materially lower then I feel that will lessen the decline of 5%. If they go higher than 7% then I think the decline in home prices will be higher than 5%. Below is the forecast for 2023 from major institutions (their forecasts are for the nation).
In the end, nobody knows what’s going to happen, but I’ll be sure to keep you updated from my front row seat!