CHICAGO, May 21, 2015 /PRNewswire/ -- The metropolitan Chicago real estate market is experiencing "a positive feedback loop" in which demand for rental and "for sale" housing are reinforcing each other, according to an analysis by RE/MAX.
"It's a complex situation, but the net result is that a rising number of residential rental units are returning to owner occupied status, making rentals harder to find. That, in turn, encourages rents to rise and renters to become buyers," said Jim Merrion, regional director of RE/MAX Northern Illinois. "We believe that cycle will be playing out over the next several years."
Here and in the housing market nationally, home sales activity and home values rose through the first four months of 2015 even as demand for rentals remains strong, and those two trends are definitely related, according to RE/MAX.
The cost of buying a home in the Chicago area has compared favorably to the cost of renting over much of the last two decades, in part because rental construction has previously lagged in this area, keeping rents relatively high. Development of new rental properties is beginning to accelerate.
From March 2010 to March 2015 the average rent for a two-bedroom apartment in Chicago increased 41 percent, according to the website Rent Jungle. During the same period, the median sales price of a Chicago-area home rose 11 percent.
The housing slump of 2007-2012 expanded the supply of rentals but also boosted demand. Many former homeowners had to rent, and established renters often chose not to buy, but that has changed, according to the RE/MAX analysis.
"We see a shortage of rentals because home values have increased enough that the owners of many rentals want to sell," said Rachel Hausman of RE/MAX Experts in Buffalo Grove, Ill.
"Fewer rental units lead to higher rents, so more young renters are looking at buying. I've converted several people in the last few weeks from renting to buying. It really can be the less expensive option, especially with the low-down-payment mortgage programs now available."
The rental shortage isn't limited to Lake County. On Chicago's North Side, "we're seeing a small supply of units both for rent and for sale," reports John Kubacki of RE/MAX Signature in Chicago.
"One factor contributing to the shortage of rentals is that condo associations are taking steps to limit that option," he said. "Several large homeowners associations recently said that new owners can't rent until they have occupied their unit for two years. Many renters are finding their only choice right now is to stay where they are and pay more or buy something. I expect a lot more first-time buyers as this year moves along."
Paul Ayers of RE/MAX Central in Roselle, Ill., is seeing similar steps taken by suburban homeowners associations, especially in townhouse communities.
"Many associations now bar rentals, and that can negatively impact property values by putting the community off limits to investors," he said. "At this point, the rental market is fairly solid. A few years ago, we were seeing many rental evictions triggered by job loss, but today there's much less risk for investors and for the communities. Tenants are more credit worthy."
Where purchase prices are attractive and rentals permitted, investors remain active, according to Nicholas Calabrese of RE/MAX Premier Properties in Chicago.
"Knowledgeable investors see a reliable pool of renters, people 35 and under who aren't ready to buy even if they can afford it," he said. "They don't want to tie themselves to a purchase quite yet, but buying can be quite attractive. Real estate agents just need to educate young renters about purchasing because even if they have the financial wherewithal, many are put off by the big numbers and the unfamiliar process."
Christopher Hoelz of RE/MAX Showcase in Gurnee, Ill., reports that in his market area many current renters are considering buying.
"I'm getting two or three times the number of inquiries as two years ago from potential first-time buyers," he reports. "Landlords have been able to raise rents 5 percent a year for well maintained units, and there has been a lack of new rental construction in our area. As a result, this is still an attractive market for investors."
Dave Shalabi of RE/MAX Synergy in Orland Park, Ill., sees the economics of purchasing as compelling in his south suburban market area.
"We recently sold a home that could have rented for $1,350. The cost for the buyer was only about $700 a month (after the down payment)," Shalabi said. "Quite often, owners of rental properties got there not as investors but because they wanted to move to a larger home and refused to sell at a loss, so they rented the property for a few years. Now, values have rebounded some, and many are ready to stop being landlords. They have other things to do with that capital."
The result, according to Shalabi, is a reasonable supply of homes for sale and attractive values to be had.
"If renters take time to investigate the actual costs of ownership right now, they may be pleasantly surprised," he said.
RE/MAX agents consistently rank among the most productive in the industry. In the United States, RE/MAX agents averaged 15.6 years of real estate experience and 16.0 transaction sides in 2014. RE/MAX has been the leader in the northern Illinois real estate market since 1989 and is continually growing. The RE/MAX Northern Illinois network, with headquarters in Elgin, Ill., consists of 2,200+ sales associates and 105 independently owned and operated RE/MAX offices that provide a full range of residential and commercial brokerage services. Its mobile real estate app, available for download at www.illinoisproperty.com, provides comprehensive information about residential and commercial property for sale in the region. The northern Illinois network is part of RE/MAX, a global real estate organization with 100,000+ sales associates in 90+ nations.
RE/MAX Northern Illinois
SOURCE RE/MAX Northern Illinois