Interest rates plague Illinois agents and housing market

Interest rates are a major headache for real estate agents across Illinois.

On the sell side, agents say that low mortgage rates from a purchase or refinance transaction in late 2020 or early 2021 are keeping many potential sellers in their home.

“A lot of people pre-COVID or during COVID locked in a great rate,” said Ryan Smith, a Western Springs, Illinois-based RE/MAX Properties agent. “You have a lot of people that are wanting to move, whether it be that their kids graduated and they are empty nesters, or they have a growing family and would like more space, but they are married to their rate. They don’t want to give up their 3% rate for a 7% rate.”

Local agents say this is one of the main reasons why the state is struggling with housing inventory. As of June 14, the state had a 90-day average of 10,393 single-family active listings on the market. That was down from 49,473 active single-family listings in June 2019, and only slightly better than the all-time low of 9,570 active single-family listings set in late April 2022, according to data from Altos Research.

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Despite the state’s tight inventory, the housing market is not as hot as one might expect. The state has an Altos Market Action Index score of 54, down from 63 in May 2022, when there were only 800 fewer active listings on the market. Altos considers a Market Action Index score above 30 to be indicative of a seller’s market.

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Again, agents attribute the cooler market to interest rates.

“The biggest issue right now, is the interest rates are 7% or higher and they have remained that way for years now,” said Mary Wallace, an Oak Lawn-based Coldwell Banker Realty agent. “I think people really got used to the lower interest rates. They started to drop a little in November 2019, and we started to get busier and busier, and then COVID happened and even more people entered the market.”

But between January 2022 and October 2023, mortgage rates jumped from roughly 3% to 8%, which caused many prospective buyers to rethink their budgets and even their entrance into the market, Wallace said.

“Buyers are taking their time and they definitely are being pickier,” Wallace said. “They are looking at the payments, and to go from a 3% to a 7% mortgage is an astronomical jump. They love houses that are ready to move in because they don’t have the time to do a complete rehab, and it is super expensive right now to do a lot of those mechanical fixes.”

Even though buyers are choosier than they have been in the past, agents say they are still seeing the occasional multiple-offer situation, especially for move-in ready properties in popular locations that are priced well.

“I have a property that we got 22 offers on recently,” Smith said. “It is a good-priced home and we had a ton of interest. I’m seeing that a lot right now, especially in the Chicago suburbs. If something comes out priced well, I am going to have at least 10 to 20 offers on it.”

Smith also noted that while bidding wars are still occurring, buyers are not stretching as high as they were at the peak of the post-pandemic market.

“Back during the pandemic, you’d see stuff go $75,000 to $100,000 over list price,” Smith said. “You are seeing a more conservative aggression. You might see $10,000 or $15,000 over list price.”

These multiple-offer situations and tight inventory have caused home prices in the state to continue to rise. Data from Altos Research shows that the seven-day average median list price was $344,000 as of June 14, roughly $4,000 higher than its summer 2023 peak price, and up from $279,900 in June 2019.

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But agents say there are still opportunities to win listings and help clients get into the home they want.

“You have to use an experienced agent that knows how to handle the offer process and how to write good offers,” said Kimberly Taylor, a Freeport-based NextHome First Class agent, who is ranked No. 2 in the state by transaction sides in the 2024 RealTrends rankings.

“I’ve received offers on my listings with just $100 or $500 earnest money and wanting everything from the kitchen sink to the couch to stay, and that is not ideal for a seller,” she said. ”There is no advantage for a seller to work with an offer like that. You can still win properties right now on a VA loan or an FHA loan, but your agent has to know how to compete with conventional loans and even cash buyers.”

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