House prices and sales in the Chicago metropolitan area are forecast to be the lowest of all major U.S. cities and their suburbs in 2017.
The forecast, by Realtor.com, places the Chicago-Naperville-Elgin Metropolitan Statistical Area last out of the 100 metropolitan areas surveyed. This sluggish growth is a response to high property prices, according to Mark Glennon, who runs Wirepoints, an Illinois-based business information service.
“I would say this largely reflects the exodus of taxpayers, employers and the tax base out of the state,” Glennon told Illinois Business Daily.
Prices in the area will rise 1.95 percent in 2017, and sales will increase by 2.27 percent, according to the Realtor.com forecast.
This compares with Phoenix-Mesa-Scottsdale, where prices are forecast to grow by 5.94 percent and sales by 7.24 percent, and Los Angeles, with prices and sales expected to grow by over 6 percent.
“It’s the response to high property taxes,” Glennon said of the Chicago area’s bottom ranking. “Property prices and sales go up and down based on the costs associated with maintaining a house. Suburbs of Chicago, particularly the property taxes, are astronomical, with south suburbs and McHenry County at 4 percent or 5 percent. It is suicidal.”
Tax rates across the Chicago suburbs range from 2 to 5 percent, with most between 3 and 4 percent. Property owners in the city still pay among the lowest, at 2.1 percent, even after the record-breaking hike announced by Mayor Rahm Emanuel in 2015.
That city rate is still high by national standards, with other big cities averaging roughly 1.5 percent, Glennon said. But the south suburbs are in a death spiral, and property taxes are a key reason, Glennon said in a 2015 study.
Many municipalities have rates of well over 5 percent, and one, Ford Heights, has a rate of close to 11 percent.
“Rates, indeed, have surpassed what any rational person could defend,” Glennon said. “The numbers provide a stark warning to all communities that are heavily taxed.
While critics of the higher-than-average property tax rates believe they are leading to an outflow of jobs, the employment rate in the metropolitan area dropped to 5.5 percent in October, down from over 6 percent this year.
Total nonfarm employment stood at 4,681,500 in August 2016, up 62,200, or 1.3 percent, over the year, according to the U.S. Bureau of Labor Statistics.
During the same period, the national rate increased 1.7 percent. The Chicago area’s increase was the second lowest of the country’s 12 largest metropolitan areas.
The 2017 Realtor.com forecast of home prices and sales predicts a slowdown in both compared with data from the past two years.
Home prices are anticipated to increase 3.9 percent, and existing home sales are forecast to increase 1.9 percent to 5.46 million homes, the survey said.
Interest rates are expected to reach 4.5 percent. The forecast is based on GDP growth of 2.1 percent, a 2.5 percent increase in the consumer price index, and unemployment declining to 4.7 percent by the end of the year.
“We don’t expect the outcome of the election to have a direct impact on the health of the housing market or economy as we close out 2016. However, the 40-basis-point increase in rates in the days following the election has caused us to increase our interest rate prediction for next year,” Jonathan Smoke, chief economist for Realtor.com, said.