Potential homebuyers in McHenry County might find themselves locked in a bidding war or paying more than expected in a fast-paced market with limited inventory, which picked up during the pandemic and has continued as restriction began to ease.
Although fewer houses than usual are for sale, those that are listed are selling fast and often for tens of thousands more than the asking price, said Crystal Lake real estate agent Rick O’Connor of Realty Executive Cornerstone.
“It is definitely favoring the sellers right now,” O’Connor said. “I’ve been doing this now for almost 40 years and we have never seen the inventory this low ever for as long as I can remember.”
Constructing new houses has presented obstacles of its own amid lumber shortages and escalating material costs, said Geoffrey Hewings, the emeritus director of the Regional Economics and Applications Laboratory at the University of Illinois at Urbana-Champaign.
“It takes a while before the construction will catch up with demand, and a lot of builders are complaining that they can’t get labor,” Hewings said.
The price of lumber has risen more than 300% since April 2020, increasing the average price of a new single-family home by nearly $36,000, according to the National Association of Home Builders.
The competitive purchasing market wasn’t necessarily born of increased demand, O’Connor said. Rather, COVID-19 prompted some homeowners to re-finance or remodel, meaning simply that fewer houses are for sale.
“Normally right after Jan. 1, ... we start seeing an increase in inventory and it hasn’t come,” O’Connor said. “The demand hasn’t gone up, but it’s remained steady.”
It’s a trend that can be tracked statewide. According to the association Illinois Realtors, closed sales for April, the most recent data available, were up 35.3% for all of Illinois compared to this time last year.
The inventory of homes for sale, however, was down 48.7% from 48,232 in April 2020 to 24,749 in April 2021.
Properties also aren’t staying on the market long. The average number of days a listing is on the market until a sale takes place is down 28.3% from this time last year and 26.2% year to date, according to Illinois Realtors.
“Right now if they’re on the market 30 days, they’re probably overpriced,” O’Connor said. “That’s not across the board… The average market time right now if you look is probably right around 30 to 45 days whereas normally it’s 60 to 90 [days].”
Well-priced, nice houses in desirable neighborhoods might not last even a week on the market, he said.
That kind of competition has made house hunting more difficult for first-time homeowners, or those buying through Federal Housing Administration or Department of Veterans Affairs loans, Hewings said.
“In fact, one of the tightest areas in the market is in the lowest 20%. The supply there is really constrained,” Hewings said. “The houses that were, say, $150,000 are now $180,000.”
Beyond that, prospective homebuyers have found themselves limited to slim pickings, Hewings said.
“People are just not finding the variety that they hoped would be there, not finding houses in their price range and all of these things are generating a very, very competitive market,” he said.
As of April of this year, the average sale price for a single-family home in the area encompassing Crystal Lake, Lakewood and Prairie Grove was $270,000, according to Heartland Realtor Organization. That’s compared with the $240,000 median sale price in the same area in 2020 and $235,000 in pre-pandemic 2019.
Although some homes are selling for more than the asking price, the fast-paced market and limited pool mean not all sellers have a new home to move to, O’Connor said.
“One of my clients is trying to move to Tennessee, and they were asked to make an offer on a house site on-scene that they hadn’t even seen,” O’Connor said.
Hewings agreed, noting that risk-averse homeowners might be willing to sell but fearful they won’t have anywhere to go.
The market may begin to shift, however, once the state’s moratorium on pandemic-related evictions is lifted, according to O’Connor.
“I’ve been told by a number of asset managers to be prepared for when the floodgates open,” he said.
Gov. JB Pritzker announced last month that Illinois intends to phase out the moratorium by August.
Still, it could take several months to notice any of those potential effects, and even then it’s unclear exactly what the market might look like, O’Connor said.
Foreclosures and evictions have their own legal processes, and even with more of those properties on the market, Hewings said he doesn’t expect a “dramatic difference.”
“The number of these houses is probably going to be relatively small compared to the size of the potential demand,” Hewings said. “I really don’t see it having a significant effect.”