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After a frenzied 2021 housing market, the coming year could bring a small measure of relief for prospective homebuyers.

But the market won’t go cold, real estate industry professionals predict.

Rather, changes in home price growth, the supply of homes for sale and upticks in rock-bottom interest rates are more likely to stabilize the market after an unpredictable 2021, they said. That likely won’t mean an end to competition or high prices — and it doesn’t bode well for first-time homebuyers — but the market could ease up compared with 2021.

“I think you still have to be competitive,” said Tracey Royal, assistant branch vice president at Coldwell Banker in Oak Park. “But you have a moment to take a breather.”

In the nine-county Chicago metro area, the median home sale price from January to November was $300,000, up nearly 12% over the same months in 2020, according to the Illinois Association of Realtors.

 

Part of what has been behind the price increases is too few homes for sale. About 31% fewer homes were listed for sale in November than the year before, and they were on the market for 18% less time: an average of 27 days, the data shows.

Prices are likely to rise next year, but won’t continue the exponential growth of 2021, said Daniel McMillen, head of the Stuart Handler Department of Real Estate at the University of Illinois at Chicago. Without an influx of new residents to the area or big increases in incomes, that growth will become unsustainable, he said.

What happens in the housing market will depend largely on the course of the COVID-19 pandemic, he said. If it eases, more homes could come on the market, helping with supply shortages. Construction of new homes could also return to pre-pandemic levels as labor and material shortages improve, but without new residents flocking to the region, new construction isn’t likely to skyrocket.

High inflation, meanwhile, is likely to cause interest rates to tick up, he said. Even if rates only rise slightly, it could be enough to drive some prospective buyers out of the market, easing demand and competition.

Still, interest rates remain low, and as long as the rise is slow and gradual, it shouldn’t dampen the market too much, said Ralph Melbourne, president of Key Mortgage Services.

 

While all of that could mean a more stable housing market, it’s bad news for first-time homebuyers. Rising interest rates, combined with still-high prices, are likely to affect first-time buyers more than veteran buyers, McMillen said.

“The city has good reasons to want people to be invested in it, so yeah, I am a little concerned about that,” he said.

The good news for first-time buyers is that smaller units might be less in demand and remain more affordable, he said.

Whether and how employees return to their offices is likely to be a key driver in whether buyers seek single-family homes, condos, the city or the suburbs, Royal said. For now, as many employees continue to work from home, they continue to seek more space, she said.

“How people get back to work, whether it’s at home or it’s going back into the office, is definitely going to affect the choices of where people want to live and what type of houses they’re going to want to live in,” she said.

 

Early in the pandemic, Melbourne saw city dwellers flock to the suburbs or to lakeside towns like New Buffalo, Michigan. Lately, he said, he hasn’t seen extreme movement one way or another.

Home sales in the city from January through November were up 29% over the same months in 2020, Illinois Association of Realtors data shows. More than 30,700 sales closed in those 11 months, compared with 23,795 through November 2020.

The median sale price rose nearly 7%, to $337,500.

Homebuyers are continuing to look for amenities like home offices and workout areas, Melbourne said. Kitchens are a priority. Condo-buyers are looking for bigger units, rather than one-bedrooms.

“Where you live has become more important and people are paying attention to it,” he said.

sfreishtat@chicagotribune.com

Sarah Freishtat

Chicago Tribune