It’s been a very rough few years for the real estate market in Chicago—the ongoing recession and sluggish resale market are unfortunately still news  and both buyers and sellers are watching the situation closely for any signs of  improvement. But how does next year look? Is 2013 looking up, staying flat or  will it slide further into grim territory?  

 Location, Location, Location

 “I’m going to sound like a broken record, but it is all about location,” says Richard F. Klawiter, partner and chair of DLA Piper LLP, a real estate law  firm in Chicago. “For example, sales in the Lincoln Park condo project have been quite brisk, and  the sales prices per square-foot have been solid.” Lincoln Park 2520 is a three-building, high-end condominium project and Chicago’s first major condo project in two years.  

 Steve Bloomberg, a principal and shareholder at the law firm of Chuhak & Tecson, P.C. in Chicago, says that the area’s real estate market and the surrounding suburban area have improved over the  last six months. “However, the increase in the prices for residential homes and the demand for  housing has been uneven depending on the location within the city of Chicago  and the location within the suburbs,” he says.  

 Ilene Collins, chief executive officer of the Apartment People brokerage in  Chicago, says that this year has definitely been an interesting time, not only  for sales but for rentals, too.  

 “If you are a first time buyer, you may be in the best position of all,” says Collins. “That is, if you have the funds to put enough down. I believe you have to have  the money to be loaned the money, but if all is in place, you could buy at the  lowest prices in 20 years and for the lowest interest rates in 20 years. While  there are less properties on the market than in years back, more and more are  being sold while sitting on the market less time than in years back.”  

 On the other hand, Klawiter says that there is a lot of product still to be  absorbed at lesser desired locations. “Until that happens, it will largely be a matter of discriminating buyers having  lots of options,” he says. “New construction condo projects are almost non-existent. Pre-sales requirements  are high, financing is challenging and the capital markets’ interest in new condo projects is also almost non-existent.”  

 Eric Enloe, managing director of Chicago-based Integra Realty Resources, which  offers commercial real estate valuation, counseling and advisory services, says  that in the downtown area and the near-in suburbs there is a general feeling  that the market has bottomed out and the market is stabilizing.  

 “In the downtown area, in some instances I have been informed about very  competitive bidding for condominium units,” he says. “The outlying suburban areas of Chicago have not reached a bottom yet and are  still trying to reach stabilization. In these outlying areas, there are some  many options due the amount of available land for development (for new homes)  and also a large supply of existing homes that are available.”  

 When it comes to Chicago’s rental market, Collins says that it’s a fantastic time to be a property owner. “The owners have a low vacancy rate and are finally enjoying higher rents and  more income,” she says. “It is a time when tenants are having a difficult time finding exactly what they  want on the market, and nothing stays on the market very long. More and more  tenants are fighting for fewer properties and, unfortunately in the  highly-saturated rental areas, we didn’t see the developers and builders creating new inventory. When people are trying  to make sure they are being fiscally responsible in tough economic times, they  tend to save money and not move as often as in years past. Our agency has seen  more and more customers coming in truly needing help finding the vacancies that  fit their needs.”  

 In terms of multifamily, Klawiter says it’s a different picture. “The apartment market is strong and the sector is poised to outperform other  property types,” he says. “The strength is fueled by low levels of new deliveries, a continued shift from  home ownership to renting, positive demographic trends and slow, but steady  employment growth. As new supply deliveries noticeably increase by later this  year and early next year, they will have a direct impact on market  fundamentals. Demand will keep pace with the market, particularly as employment  increases.”  

 Even with brisk condo sales and a better market for buyers, Bloomberg says that  potential purchasers still have several concerns. “Many are still concerned that the market values have not bottomed out and they  are waiting to purchase,” he explains. “Other prospective buyers are concerned that they may not be able to maintain  their job or get a better job to fulfill their mortgage obligations. Still  others are waiting on the sidelines for the general economy to pick up before  making a home purchase.”  

 Bloomberg says that some of those who are buying now are also concerned that  property values and interest rates may rise, so they are trying to get a jump  on the market and take advantage of buying a house or condominium now.  

 Incentives, Anyone?

 In a tough economic and real estate market, incentives are needed to help  encourage developers to develop and buyers to come in and buy.  

 “The city and the state remain aggressive but not in the areas and locations  where incentives would be warranted or even eligible,” says Klawiter. “Incentives tend to be limited to promoting projects in sub-standard locations  and/or to promote and support affordable housing. Incentives in for-sale and  multifamily projects in strong locations are almost non-existent and tend to be  available only as a restructuring or work-out tool where development has  stalled or been unsuccessful.”  

 In addition to developer incentives, over the last few years, there have been a  host of buyer incentives at developments, used to entice buyers to seal the  deal. Examples include a $10,000 to $15,000 incentive from The Partnership for  New Communities applied towards down payment and closing costs. Some  developments offered a few months of free living, while others offered  financial credit for furnishing the units. “In terms of individual buyers, first-time homebuyer programs at local, state or  even federal levels exist but are used typically on the margins, if at all,” says Klawiter.  

 Crystal Ball

 With 2012 soon drawing to a close, how do these Chicagoland real estate  professionals see prices, availability, buyers' expectations and demands, etc.  going in the next year or two? If only we could look into the future with our  own Cooperator crystal ball and get a clear view of the area in the next few  years.  

 What’s the long view of the region as a place to live in general? Has the recession  leveled the playing field somewhat for young families, singles, and other  non-millionaire folks? And finally, is it a more feasible place to buy property  now?  

 “That’s the $64,000 question,” says Klawiter. “Time will tell. Good product abounds for first-time homebuyers, but banks have  tightened underwriting and valuation standards and this often offsets the  perceived value a first time homebuyer can expect in many markets. Buyers and  businesses remain bullish on Chicago, especially given demographic trends and  increasing employment. For every buyer seeking an opportunity, there are  sellers coming to grips with lost value in the units they would be inclined to  sell. Valuation is still difficult.”  

 Klawiter says that there are promising developments on the horizon, including  Museum Park, a 62-story high-rise located in Chicago’s South Loop.  

 “They are coming online with Related Midwest taking over the marketing and sales,” he says. “Their launch will be successful because of location, the strength and expertise  of Related Midwest and the quality of the units.”  

 However, Klawiter expects this success to be an exception. “But if it achieves the success I expect, it will also be a model to replicate,” he says. “Unlike multifamily developers and their equity partners, who can obtain  reasonable financing from a host of sources, including Fannie and Freddie and  even insurance companies, condo developers are burdened. Raising rents will be  more difficult for old product competing against just completed units,  especially in low-barrier to entry markets.”  

 In an election year, it’s also important to focus on what the federal and state government need to do to  help spur the real estate market along. “Insecurity is bad for the housing market and several issues need to be addressed  to help spur growth,” says Bloomberg. “The federal and state governments must resolve questions on taxes and what is  required to get businesses to expand and increase the amount of jobs that are  available. Once some of these insecurities are resolved, we are more likely to  see a pickup in the housing market.”  

 Like Klawiter says, only time will tell how the market will pan out in the next  12 to 18 months following the presidential election and any pending economic  changes that may affect the real estate market.  

 “Chicagoland remains a great place for all types of people to live—singles, young families, empty nesters,” says Enloe. “From the arts, music, sports, dining and entertainment, Chicago is truly one of  the great cities in the United States. Pricing has decreased, making home  buying more affordable. However, although home mortgage rates are low there are  tighter qualifications in place. The key to Chicago remaining a great place to  live is the employer strength. Chicago must continue to develop and diversify  its employer base.”  

 However, from what the experts say here, if you have the money to buy, it might  behoove you to check out the market now before interest rates go up.     

 Lisa Iannucci is a freelance writer and a frequent contributor to The  Chicagoland Cooperator.