Illinois Home Values Are Not a Bubble

A real estate bubble occurs when prices grow beyond reason and houses sell for well more than the value they can reasonably be expected to hold. Illinois housing has been hot for the past few years, but these homes should continue to appreciate over time. Here’s why: 

• Steadying costs 

After a year of rising inflation and rapid mortgage rate increases, costs are stabilizing. The rate of inflation is slowing, and the National Association of REALTORS® predicts that mortgage rates will settle around 5.7% in 2023. This remains lower than the historical mortgage rate average of 8%. With mortgage rates around 6%, buying activity should normalize. 

• Constrained supply 

Even though sales slowed over the past year, inventory remains tight. New construction is limited by continued supply chain challenges and the high price of raw materials. Meanwhile, those who bought homes in 2020 and 2021 will be hesitant to sell them and give up their low mortgage rates. These factors will combine to ensure that homes continue to hold their value.   

• Regional stability

Recent years saw home sales across the country boom and then slow, but the Midwestern market has been resilient, according to Dr. Lawrence Yun, chief economist and senior vice president of research for the National Association of REALTORS®. Because home prices here always remained more affordable than those out West, the decline in market activity was comparatively modest. Homes in Illinois should be on track to continue slow but steady appreciation. 

Chicagoland has timeless appeal to buyers. Northern Illinois communities balance the benefits of the suburbs with easy access to a world-class city and many job opportunities. The region may also see a future influx of people looking to move away from extreme weather on the coasts. All of these factors will allow Illinois homes to hold value, despite short-term shifts in the housing market.