Post-Election: How to Decide to Rent or Buy in Chicago

With the election on people’s minds, we found ourselves wondering, “Are we entering a new era”? We took a look at the age-old Rent or Buy question again, with post-election glasses.

A recent article from WSJ shows that home prices “set a record in September, reaching their highest level since 2006 and bringing to a close the worst stretch for the housing market since the Great Depression.”

Chicago Prices Stabilize After Hot Summer

In Chicago, home prices show stable growth (3–4% per year) since the recession of 2008. The uptick seen over the past six months is starting to level off. As this graph from the Economist shows, Chicago is not seeing the drastic rises of other major metro markets like San Francisco and Boston.

A consensus of Truepad’s Trusted Agents showed confidence that there is stability and room to grow in the Chicago market. In the short term, condos and houses are selling very quickly, and inventory is low (and has been for a few years). This climate is not rife with bargains. A more aggressive market—as we saw throughout the first half of the year—features multiple offers, and over-list-price offers.

With inventory low and less choice, buyers have a harder time finding what they want. With an unsure economy post-election, the agents felt it is likely more people will opt to rent at least until the market heats up again in Spring.

Trump Season

The one real test of the housing market will come as mortgage interest rates rise. Everyone thought the Dow would tumble with a Trump election, but it also seems the market just has blips around the election… especially if the result is unexpected. We will watch how this develops in coming months. Interest rates for now are up slightly around 4%.

Despite uncertainty, there are a few benefits to buying in Chicago, and over the next few years the trend will likely continue. With a median list price still under $200K, compared to many cities in the USA, Chicago’s real estate market is remarkably friendly for the middle class. The bottom line in the Rent or Buy argument, according to Truepad Trusted Agent Alicia O’Toole: “If you love your neighborhood and want to stay, it’s usually a good idea to buy. Otherwise, when you are ready you’ll be chasing your price point through neighborhoods going west,” O’Toole said with a chuckle.

Rents Rising

It’s Chicago’s rents that have been rising at a clip over the past few years. “Last year housing prices rose 6 percent, while rents rose 14 percent,” Alicia told us. The boom in rental construction downtown reflects this. “Rents rising in the city is never just an issue in the most desirable neighborhoods. These popular areas have low inventory for rentals, pushing prices up,” O’Toole explained. That has a knock-on effect of raising prices in the neighboring areas, and prices rise all over.

This happened to O’Toole. “When I was younger I had an option to buy in Andersonville. I thought I wasn’t ready,” she said with a slight shake of the head. She ultimately moved further west last year to get a single-family home in her price range.

For anyone who’s thinking about renting versus buying, O’Toole loves to recommend the New York Times rent or buy calculator. “It’s an unbiased source (important), that takes nearly everything into account—location, interest rates, and budget, to tell you how much (or how cheap) the rent has to be to be a better deal than buying,” she said.

We looked at a few Chicago neighborhoods to see how many years you’d have to stay to make buying worthwhile financially.

How to make buying financially worthwhile (Nov 2016) 

  Median Rent Median Sale Price Years to stay
Chicago Overall Average $1670 $214,400 Year 2
Andersonville/Uptown (60640) $1450 $265,000 Year 3
Lincoln Square/Ravenswood (60625) $1375 $275,000 Year 3
Lake View (60657) $1750 $444,500 Year 4
Wrigleyville (60613) $1650 $274,000 Year 2
Edgewater (60660) $1200 $215,000 Year 3
Irving Park/North Center/Avondale (60618) $1700 $450,000 Year 4
Rogers Park (60626) $1300   $183,700 Year 2

In the table above, we took the ratio of rents to prices in each neighborhood and found out the amount of years you would have to stay to make buying more affordable. These are averages, so will vary based on the rent or buy deal you can find.

The upshot being, the only reason in the current climate we would advise you to wait to buy is if you want to live in Lake View or Irving Park area, because homes are currently priced very high. As for pretty much the rest of Chicago, there’s still room to grow. You probably have a few years, but with all other conditions being what they are, as of November 2016 — we say: (still) BUY!

This is the first part of a series on Rent or Buy in Chicago neighborhoods.


Emily Johnson

Emily Johnson is a writer, researcher, editor, and publishing consultant with a decade of learning in the field. For Truepad she covers real estate trends and develops knowledge base articles that help people learn about the process of buying as they’re looking for a home. She went through the process herself two years ago and is a proud homeowner in Logan Square.

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