Here’s why that buyer may not plan to live in your home

One out of every four homes sold in the Chicago area in 2016 went to buyers who don’t plan to live in the property, a phenomenon that sneaked up on almost everybody.

Just over 26 percent of the homes sold in 2016 in the metropolitan area went to small investors, according to figures Attom Data Solutions compiled exclusively for Crain’s. The figure is up from 10 percent a decade earlier. The buyers include those who plan to rent the properties to tenants, rehab them for resale or use them as second homes.

Small investors are a different crowd from the big institutional investors that were hoovering up distressed properties by the thousands a few years ago. In Attom’s definition, small investors own up to 100 properties, but in the Chicago area, about three-quarters of the buyers own just one or two, according to Daren Blomquist, senior vice president at Attom.

“This is something we haven’t seen in about 50 years, this level of small-investor ownership of the housing stock,” Blomquist said. Nationwide, 33.7 percent of last year’s home sales were to small investors, Attom’s data show. That’s up from 21.6 percent a decade ago.

Institutional buyers picked up 3 percent of the Chicago-area homes sold in 2016. Combined with small investors’ buys, that makes 29.1 percent of sales going to non-resident buyers.

Small investors “have seen the flipping shows (on television), they’ve seen rental rates going up faster than purchase prices, and they think they can make a good return versus putting money in the stock market,” said Karen Schwartz, a Dream Town Realty agent. She was involved in four purchases by small investors last year—representing the buyers in two and the sellers in the other two—and said she has “about 10” current clients looking to make similar buys.

Other factors drawing small investors into real estate are still-low interest rates and home prices that are rising slowly relative to the rest of the country, Blomquist said.

“Buy and hold is a smart idea right now in Chicago,” said @properties broker Mike Vesole. Late last year, veteran flippers Vesole and Paul Fortman, also of @properties, launched Property Prep Pros, which offers investor buyers advice and construction-contracting work on properties to either rent or flip.

In opting for the time-honored strategy of earning passive income from rentals, small investors “may be hedging against what comes after the irrational exuberance we’ve been seeing in the stock market,” said Geoffrey J.D. Hewings, emeritus director of the Regional Economic Applications Laboratory at the University of Illinois at Urbana-Champaign. If the recent stock market surge falters, “some of their money is in something that’s more long-term,” he said.

MAJORITY ARE RENTALS

While Attom could not provide a breakdown of how many properties small investors bought to flip and how many to rent, landlords appear to be the big dogs, Blomquist said. A year ago, a report from his firm (then called RealtyTrac) indicated that 4.5 percent of sales in 2015 were to flippers. That’s a minority of the 18.6 percent of that year’s sales that his firm now reports went to all types of small investors, including flippers. “Landlords seem to be the majority,” he said.

The high demand for rentals, in both multi-unit buildings and free-standing houses, is a draw. Chicago-area homeownership dropped from its 2006 peak by more than 7 percentage pointsthrough late 2015, to just under 64 percent. Whether they’re former homeowners who got foreclosed during the recession years, millennials who haven’t saved up a down payment or don’t want to buy yet, or relocated corporate employees who don’t want to buy on arrival in a new city, “you have a lot of people choosing to rent,” Hewings said.

Blomquist said the steep climb in the number of small-investor buyers was a surprise. His team unearthed it when researching who has been buying since institutional investors began to cool their jets after 2012 and 2013, when they made nearly 8 percent of all U.S. home purchases. In 2016, institutional investors made 2.9 percent of the purchases.

Small investors looking to buy this year may find it harder to do, Schwartz said. Because investors are generally more likely than end-user buyers to negotiate hard for a lower purchase price, the recent months’ acceleration in Chicago’s real estate recovery may prompt sellers to hold out for a higher price from a buyer who plans to live in the place, she said. “There’s a limit to what an investor will pay,” she said, because the numbers have to work for them.

Expect to see more events around Wrigley Field this year

As work continues on the new Cubs Plaza next to the historic Wrigley Field, Cubs chairman Tom Ricketts has offered a clearer vision for how the team plans on using the new space. Yesterday during a luncheon at the City Club Chicago, Ricketts suggested that the team hopes to host events “every day,” DNAinfo reports.

Plans for the plaza at Wrigley Field debuted two years ago, with the team suggesting that they hoped to host up to 25 events annually. However, over the last couple of years, the team has been in negotiations with 44th Ward Alderman Tom Tunney over the types of events the team will host and how many. Alderman Tunney last summer suggested that the Cubs were effectively looking to create the largest beer garden in the Midwest. However, Cubs chairman Tom Ricketts rebuffed the notion saying that the new plaza will be “more than just a beer garden.”

The plaza is expected to host events like farmers markets, outdoor movies, and live music. According to DNAinfo, at yesterday’s City Club event, Ricketts touted the team’s contribution to the city’s coffers, having raised $2 million in amusement taxes for the concerts hosted at the historic stadium last year. Ricketts said that the team expects this number to double for 2017, DNAinfo reports. Ricketts didn’t seem to mince words about the team’s place in Chicago tourism and entertain. “The fact is, we’re a very, very important economic engine to the city of Chicago,” Crain’s reports Ricketts saying during the event.

Wrigleyville residents can expect to see more construction and changes to the area as new development, including new hotels and retail space, continues filling in. And over the years, the Ricketts family has been making quick work of the resistance from rooftop owners by scooping up 11 of the properties. But don’t count on driving to Wrigley later this year—parking rates around the ballpark are set to double.

Beat the elements and enjoy the Chicago Riverwalk from your own private ‘River Dome’

Even if Chicago’s recent warm spell was nothing more than a short-lived fluke, there’s still an opportunity to sit and enjoy the scenery of downtown’s riverwalk while sheltered from the elements. Next month, riverwalk vendor City Winery will debut a set of temporary transparent, climate-controlled “River Domes” available to rent and enjoy in 90-minute blocks.

The well-furnished structures can accommodate groups of six for $100 per individual and will cost between $125 and $150 per person for smaller, more intimate parties. According to the restaurant’s website, the price includes a selection of cheese, charcuterie, and house-made wine.

In addition to views of Chicago’s iconic downtown architecture, the domes also feature heaters and bluetooth speakers for guests to DJ their respective bubbles. The unusual shelters will be available to reserve starting March 17th and are expected to stick around through the end of April.

The Chicago Riverwalk
Photo via Curbed Chicago Flickr pool/Erik Wolf

 

Milwaukee Avenue’s transformative development boom, mapped

While many cities across the country are witnessing construction booms, the development activity currently underway in Chicago cannot be overstated. Last year, Chicago witnessed a post-recession record number of operating tower cranes, suggesting that the economic deep freeze of the recession is all but a memory. Perhaps surprisingly, the only US city to have more construction cranes operating last year was Seattle.

But Chicago’s construction boom has spread out of the Loop and into the city’s neighborhoods, not only seeing the transformation of other downtown areas like the West Loop and the South Loop, but also neighborhoods along Milwaukee Avenue and the Blue Line.

Hundreds of new apartment units have been delivered along the busy Milwaukee Avenue artery over the last couple of years, and hundreds more are on the way. When including all of the proposed, under construction, and completed units that have been highlighted on this map, the stretch of Milwaukee Avenue between the Grand Blue Line station and the Logan Square station will eventually see the delivery of nearly 3,000 apartments.

Report: Chicago home sales and prices spiked in January

With Chicago home sales up 9.3 percent compared to the same month one year prior, the Windy City’s residential real estate market in January was equally as hot as the unseasonably balmy weather. The rise in both temps and sales was more than just a coincidence, said Illinois Realtors President Doug Carpenter in a press release issued yesterday. “The bitter winter weather everyone anticipates in January never really materialized, and as a result it looks as if plenty of buyers were out looking for homes,” explained Carpenter.

In addition to a higher number of homes selling at a faster pace than before, data for January also showed a notable increase in Chicago home prices, which were up a surprising 12.4 percent over the same period in 2016. Unusually low inventory—an issue that also faced the market last year—is contributing to surging prices. As a result, many city home sellers are routinely experiencing rapid sales and entertaining multiple offers.

“Our year-over-year numbers continue to demonstrate the strength of the Chicago market, as properties are being snatched up at a pace rarely seen,” said Chicago Association of Realtors president Matt Silver via the same release. “With higher prices across the board and rising interest rates, the trend will continue (barring ongoing inventory concerns) into the active spring season.”

While the Chicago market appears to be on a roll, some of the numbers for the greater metropolitan area aren’t quite as strong. In the nine counties that make up the Chicago Primary Metropolitan Statistical Area (PMSA), the Realtors report found that median home sales rose only 0.6 percent compared to January 2016. Chicago PMSA home sale prices, however, shot up a healthy 10.5 percent over the same time.

On the state level, Illinois median home prices have already recovered to the pre-recession levels. If that figure continues to increase into 2017, it will mark four straight years of price gains. With rising interest rates looming on the horizon and the market still starved for supply, real estate agents are encouraging more homeowners to take the plunge and list their homes.