Some areas are staying warm even as market cools
For a couple of years there, even veteran real estate investors, guys who have had as many ups and downs as Italy has had postwar governments, were talking about a “new paradigm.” No one’s quite sure what they meant, except that they were hoping something called the New Economy could defy one of the oldest laws of real estate: what goes up must come down.
So far, the Chicago market has been well insulated from an economic slowdown of indeterminate depth, but sales have slowed and prices are no longer as taut as trampolines when tested. Every cycle has a downturn, and we have been feeling the flutters of one over the last year.
The appearance of that inexorable law of real estate is all the more reason to pay attention to the field’s first three tenets: location, location, location.
Few would have predicted 10 years ago how rapidly prices have risen in Chicago during the ’90s. In certain neighborhoods, from the Loop to Streeterville and River North to Lincoln Park, a pack of buyers have been willing to pay almost anything for the right home. Now that the music is slowing if not stopped, however, it’s time for some to reconsider the chair they plopped down on with so much force – and money.
The question is how a slower economy will affect various locations and which emergent neighborhoods will remain hot, or at least fairly warm. In Chicago, development has been spreading out from downtown in concentric rings. Generally, the closer a ring is to the Loop and the lake, the higher the prices and the safer the investment. This trend is not always consistent, however, and of course, a wide variety of factors affect neighborhood housing values.
So how does one determine which neighborhoods are “hot?”
Well, that of course depends on how you define the term. For real estate types, a neighborhood is often considered hot in the earliest stages of rehabbing and development, especially if it’s somewhat run-down, with bargain prices and big potential for appreciation. That’s the outlook of the professionals, though, who see communities in terms of dollar signs. Home buyers are certainly concerned with investment value, but if they plan to live in a neighborhood for five or ten or twenty years, it’s not the only or even the biggest concern.
Our list of “hot neighborhoods,” admittedly a subjective one, factors in appreciation, but also takes other considerations into account – safety, services, convenience, amenities – the things home buyers are concerned with. Certain neighborhoods, most notably Lakeview and Lincoln Park, have not been included despite high marks for livability and rapid recent appreciation. Prices in these areas simply are already too high for the neighborhoods to be considered hot.
Buyers are not likely to lose money in Lincoln Park, but the days when they could bank on making a lot of it at resale may be slipping. The median single-family house sold for $965,000 in Lincoln Park during 2001, a 10 percent increase over one year earlier. But the average home price actually declined 2.8 percent during the first quarter of this year compared to the same period in 2001. Some take this as another sign of a “housing bubble” that has artificially inflated home prices, especially in certain neighborhoods in recent years.
Not everyone holds this view. Some experts point out that million-dollar houses are commonplace on both coasts and propose that Chicago real estate has long been undervalued. But real estate on the coasts also has been subject to vicious boom-and-bust cycles that Chicago has managed to avoid.
Is the Near West Side hot? It certainly has been. The median price for condos and townhouses rose 60 percent during the last eight years. Thousands of new housing units are underway, and new stores and services are beginning to pop up. Prices likely will continue to rise, but in terms of rapid appreciation the time to buy here was a few years ago. Several developers report slowing sales in the West Loop, where there is a massive supply of new product and stiff competition.
The neighborhoods we have decided to call “hot” are not necessarily places where buyers will get rich by investing in real estate, but these areas do show the promise of above-average appreciation for years to come. They also meet certain minimum standards for livability. Some neighborhoods not on the list may well be “hotter” in terms of investment value, but if they did not have a certain level of safety or services we did not include them.
Perusing our list of hot neighborhoods is not a bad way to begin the search for a home, but the bottom line in selecting a location should be the most common sense criterion: does it seem like somewhere you’d like to live? If a neighborhood passes that test, odds are you’re making a good decision. These days, almost any neighborhood in the city seems like a safe bet.
Bordered roughly by Addison, Montrose, Pulaski and the Chicago River, Irving Park is a solid neighborhood of brick bungalows, three-flats and some larger apartment buildings. Immediate access to the expressway makes it convenient to downtown as well as to O’Hare and the suburbs despite its northwest location.
The neighborhood has seen a smattering of condo conversions as well as a couple of larger projects. Old Irving Village, a 40-unit townhouse development at 3801 N. Milwaukee, sold units from the $280s, and Old Irving Pointe, 3849 N. Milwaukee, still has single-family houses for sale, starting around the $290s. Though these prices are not low for the Northwest Side, they compare favorably with new West Loop townhouses starting in the $400s.
Old Irving Park is a historic district of charming frame houses, and the neighborhood boasts some great parks, including Horner and California. Though prices have been rising, the median single-family house is still a bargain at $247,500 in the uncongested area of wide lawns, large homes and quiet streets.
Bordered roughly by Montrose, Foster, Pulaski and the North Branch of the Chicago River, Albany Park has become one of the city’s most diverse neighborhoods. The flavor here ranges from Middle Eastern to Latin to Korean to Serbian. The restaurants and shops reflect that colorful mix.
There is a fair amount of poverty in the neighborhood, but pressure from the Ravenswood / Lincoln Square area to the east and Irving Park to the south has been pushing up property values and encouraging condo conversions, especially on the eastern edge. Ravenswood Manor, which despite its name is really a part of Albany Park, is a beautiful riverfront enclave whose vintage apartment buildings are rapidly going condo. Housing in this corner of the neighborhood is getting pricey, but go a few blocks west or north and a house costs much less than in Ravenswood, directly east – one sign of a potentially hot neighborhood.
The median single-family home here rose to $230,000 in 2001, up 12.2 percent over the previous year, according to CAR. The median condo price has risen more than 60 percent since 1993 but is still only $146,000, more than $80,000 below the citywide median.
Parts of Edgewater, notably the idyllic enclave of Lakewood Balmoral, are beyond hot. Prices of the magnificent houses in this spot already have gone through the roof, though they will probably continue to rise. But much of the neighborhood, which stretches roughly from Foster to Devon and from the lake to Ravenswood, remains affordable.
It may not be affordable for long, however. The median condo price rose nearly 17 percent in 2001, to $152,000. That’s a significant jump in just a year, but the median condo still is little more than half the cost of its counterpart in Lakeview, which is also on the lake, also was pioneered by the gay community, and sits just a mile or so south.
Edgewater has a solid housing stock and a growing number of condo conversions. Centered around Andersonville (Clark Street between Foster and Bryn Mawr), the neighborhood also has many great restaurants, cafes and bars at its core.
The city’s first neighborhood, bordered by the city limits on the north, the lake, Devon and Ridge, makes the list with reservations. We include it because quite simply, it is the last place to buy an affordable home on the north lakefront. In a market where prices have skyrocketed, a growing number of buyers have moved north to purchase their first homes here.
The median condo and townhouse price in Rogers Park rose about 123 percent from 1993 to 2001 and still was only $144,900. That compares favorably with Edgewater because the average condo here is larger. A steady stream of vintage buildings with large apartments in the neighborhood has converted, and several new townhouse developments also have risen lately.
Our reservations stem from safety concerns that still are very real in Rogers Park, where drug deals and street crimes are all too visible. But even notorious sections such as Howard Street and the Juneway Jungle have made significant progress (several former drug houses have been converted to condos), and in the best sign for the neighborhood, the rate of homeownership in the rental-heavy area has been rising steadily.
The Near Southwest neighborhood of Bridgeport, directly west of Comiskey Park, is bounded roughly by the South Branch of the Chicago River, the river’s South Fork, Pershing Road and the railroad tracks that run alongside Stewart. The colorful working class enclave has supplied Chicago with mayors for more than 50 of the last 100 years and remains the heart of the Democratic organization in Chicago.
Bridgeport was settled first by the Irish and Germans, hired to build the Illinois and Michigan Canal, and later by additional waves of immigrants – Swedes, Poles, Lithuanians, Czechs and Italians. Each group formed its own community, developed its own churches and bakeries and guarded its precious turf, often with the aid of street gangs.
But in-fill development, the new Union Lofts and Bridgeport Village, a project that may total 400 houses on 40 acres, have brought new life to old streets. The median single-family home here sold for $145,000 in 2001, nearly 27 percent more than the previous year, and prices are likely to keep rising in this neighborhood, which is surrounded by development and sits fifteen minutes from the Loop.