Saturday, November 26, 2011

Chicago Rents Going Up

We recently published a note about seasonality in Chicago rents based on predictable peaks and troughs in renter demand every year, in the summer and winter respectively. The same graph of internet searches for "Rental" in Chicago showed a rising baseline for that search starting in 2008.

We guessed this was related to everyone (1) losing their home, (2) no longer qualifying for a loan to buy a home, or (3) feeling afraid to buy a home.

And indeed, Chicago rents for 2 bedroom apartments are going up since bottoming out in 2007 (when everyone finally figured out that anyone could buy a few condos). Modest gains every year are to be expected as part of inflation, but the pronounced increase from 2008 to the present might be evidence of a new trend based on fundamental changes in the economy.

Developers appear to believe the trend is long term. However, many developers and banks that lent to them also thought the boom in condominium sales would last longer than it did.

The Loop has seen construction of three apartment towers finished since 2009: at 161 W. Kinzie, 227 W. Washington and 210 N. Wells. Until these, there were not new apartment buildings in the Loop for a long time.

Other projects not far from the Loop that initially called for construction of condominiums have been reformed in favor of rental apartments. Next to the condominium tower finished at 860 W. Blackhawk, a neighboring tower at 840 W. Blackhawk that was initially expected to house more condo units is now being finished as an apartment tower.

The lenders financing these projects must believe Chicago is in for a protracted period of healthy rental demand, at least near the Loop. Only time will tell. After boasting an 8.8% unemployment rate slightly under the national average in October, 2010, Chicago's unemployment rate has risen above the national average to sit around 9.7% in October 2011. Apartment buildings full of people who can't pay rent are worse collateral than empty houses.

The message for renters? Don't sign up for a longer lease like two or more years just because rents are going up and you want to "lock in" a good rent. You might lock in a bad one. Instead, if you can, try to find a Chicago apartment and sign the lease between Thanksgiving and Christmas. The key advantage to renting over owning is flexibility. Now is not a bad time to "stay liquid." Good luck.


jaylen watkins said...

It is alarming that the rents in chicago are going up. Residents may face problem.

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Dave Velasco said...

I was comparing about the expenses I will be going through if ever I choose to rent/buy.

In my own calculation, I saw that buying a house would save me more than just renting - the fact that I had saved too from renting but the benefits and other investments about owning a property is there, where renting cannot assure an individual at all.

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