Price appreciation in Chicago real estate? In this market? Am I out of my mind to be talking about appreciation?
For more than a decade Chicago’s real estate market has either been swept up in a frenzied bubble or mired in a sky-will-continue-to-fall-for-years-to-come funk. Due to extraordinary market conditions many home buyers never learned the basics of real estate value, could safely (it seemed) ignore them, forgot them, or lost sight of the fact that they still apply.
It’s a common perception that real estate values rise or fall across the board – a rising tide either lifts all boats or swamps them. The perception is accurate to a great extent, but obscures as much as it clarifies.
Real estate is, above all, both local and personal. Highly local factors and individual circumstances often drive real estate prices in the opposite direction of broad trends, creating opportunities for nimble buyers. What are some of those factors?
Most of Chicago’s public, neighborhood-boundary elementary and private schools have been places where many parents wouldn’t walk their dog much less send their child. A few of them, however, have become competitive with some of the more desirable suburban schools, and those few have had an impact on property values within their boundaries. Others are improving rapidly, and local values typically don’t reflect the improvement until the perception of a school’s acceptability becomes widespread.
Housing with easy access to public transportation often rents and sells at a premium to property where public transit is inconveniently located.
Although most people think of the public transit grid as static, it’s not, nor is its impact. Stations are being renovated and added (at Lake and Morgan, for example), and line-extensions are being considered.
It’s been nearly 20 years since the Blue Line was extended to O’Hare Airport, and property values along the line have seen a slow but noticeable impact.
Proximity to public parks, especially attractive public parks, can be a major element of real estate value. If you have any doubt about that, spend a minute thinkin’ Lincoln.
If you’ve visited any of the city’s newer or recently-renovated parks you’ve probably been delighted and impressed. The Chicago Park District generally does a great job of creating attractive public spaces that draw a crowd and have a positive impact on the immediate surroundings.
The presence or absence of nearby shopping, dining and nightlife options, or major residential development, can have a major impact on housing prices.
Commercial development sometimes lags and sometimes anticipates neighborhood change. It’s almost always the case, however, that an increased intensity of commercial development has a positive or stabilizing impact on nearby property values in the city. The coming of a single major retailer, like a Target, of a restaurant that becomes wildly popular, or a major residential development, can boost an entire neighborhood.
Accurately anticipating the impact of demographic change on neighborhoods has often been a sure-fire recipe for making money in real estate. Lincoln Park and Bucktown are good examples of neighborhood change triggered by demographic change.
The faltering economy of recent years, coupled with a poor real estate market, has gridlocked in place many people who would have otherwise moved on to different housing. An improvement in the economy or the general housing market could accelerate demand for and spur rapid appreciation in some property types and areas that have languished badly of late.
Death, divorce, financial distress, poor health, family changes, Realtor inexperience and job transfers are a few of the personal factors that sometimes lead to property being liquidated at below-market values to a buyer’s benefit. Bank-owned property occasionally sells well below its value due to appraisal errors and a bank’s eagerness to sell at or above appraised value. Difficult-to-finance property can be a windfall for the cash-heavy buyer.
Putting it all together
I don’t believe that the potential for appreciation should be the dominant factor in buying or not buying a home, but recognize that it is for many people.
If you’re one of those people, ground yourself in the basics of real estate value and look for opportunities in neighborhoods that suit you and where several elements of value are converging in a positive direction.
Parts of the West Loop, for example, may be areas of opportunity. There is a great new park at Adams and Sangamon (video, above), a Target, a Mariano’s Fresh Market, new residential construction at K Station and other commercial developments in the pipeline, a soon-to-open CTA stop, improving schools, excellent proximity to the Loop and an attractiveness to growing demographic groups.
Any other neighborhoods, large or small, poised for appreciation?