Increasing housing prices flip market
Jonathan Bruno, Contributing Writer
A Sept. 26 study of the country’s housing market conducted by ProfitFromRentals.com, which purchases, renovates and sells Chicago apartment buildings, rated Chicago’s market the nation’s No. 1 for return on real estate investment.
The analysis ranked the country’s top 20 real estate markets, according to Alex Al-Sabah, managing partner of ProfitFromRentals.com. By looking at the number of new housing permits, job growth, supply and demand and the number of single- and multi-family homes, the website deemed Chicago’s market superior for the purchase of rental properties.
To examine different markets, ProfitFromRentals.com used data from the S&P/Case-Shiller home price index, which measures home values in major cities. Chicago’s home values boasted a 3.25 percent increase from May to June, the highest in the nation. ProfitFromRentals.com also compared Chicago to the national average, stating that Chicago properties can reap a 23 percent return on investment, compared to the national average of 11.5 percent.
Successful housing markets are judged by the balance of buyers and sellers, job creation and affordability, according to Walter Molony, a spokesman for the National Association of Realtors. Molony said the number of available properties in Chicago has dropped 7.5 percent since last year, which caused prices to rise almost 14 percent in August of this year.
Kevin Rocio, an adviser for @properties, a Chicago real estate firm, said rising rental prices may stabilize in coming months depending on how steady real estate demand is. Even with this stabilization, Chicago will continue to be a good investment for buyers, according to Rocio.
The demand for houses in Chicago has surpassed the supply of available homes, which contributed to the city’s high ratings, according to Al-Sabah.
“We’ve seen that there’s a lot of movement in the Chicago market, with new companies or companies that have moved from other areas that are now setting up shop in Chicago, which is creating jobs, economic stability and economic development,” Al-Sabah said.
Financial investors look for markets with affordable properties, as well as a strong rental market. Chicago has a market of mostly multi-family properties, which are what ProfitFromRentals.com focuses on, driving Chicago to have more renting possibilities than other markets.
“Homes are very affordable by national standards in the Chicago area and rentals are tight, meaning there are excellent opportunities for investors,” Molony said in an email.
He also stated that many markets are more affordable with tighter rental markets, but he could not confirm how it relates to the study’s conclusions.
According to data July 12 by the Bureau of Labor Statistics, the Chicago area has seen job growth of 1.4 percent during the year. This growth created a higher demand for housing and facilitated a healthy market for home purchases, according to Rocio. As demand grew, Rocio said landlords were able to hike rent prices by 7 percent.
Although demand is increasing, the number of new building permits issued in Chicago dropped by 52 percent in the first half of 2013, according to a Sept. 26 press release from ProfitFromRentals.com. There is a decrease in construction for many reasons, Al-Sabah said, such as stricter criteria for new development loans.
Al-Sabah said Chicago’s market will continue to grow. Currently, ProfitFromRentals.com is able to sell properties before construction is complete, Al-Sabah said.
“I believe over the next few years, [Chicago’s market] is going to remain very solid. I think you will not see a slowdown until prices are at a point where they don’t make sense,” Al-Sabah said. “[The future looks] pretty bright for development, just for the single fact of the sheer lack of supply and increase in demand.”