Housing boom meant bust for many buyers

Homes were affordable to low-income buyers. Now region out of reach, report says.

Not long ago, the Chicago area was one of the biggest markets in the country where a low-income family could afford a modestpriced home.

But after prices soared during the COVID-19 pandemic, even the lowerpriced homes became out of reach for many low-income households, according to a recent report from the Joint Center for Housing Studies of Harvard University.

The report showed many likely first-time buyers are being priced out of homeownership. The effects of that could ripple through the rental market and what were once more accessible city neighborhoods and suburbs, real estate and lending professionals said.

“That’s changing, I think, the fabric of the communities in a lot of ways,” said John LeTourneau, president of the suburban Mainstreet Organization of Realtors.

The report also highlights one way the housing market boom has exacerbated Chicago’s shortage of affordable homes. The city was already grappling with a shortage of nearly 120,000 affordable units before prices skyrocketed in 2021, according to a 2020 city task force.

Harvard research analyst Raheem Hanifa used data from the U.S. Census Bureau and online home listing site Zillow to analyze incomes and home prices in the 100 largest metro areas in the U.S.

He found in the Chicago area, a homebuyer earning between 50% and 80% of the area’s median income could afford a house priced at $201,664.

In June 2020, a home slightly below the median price was comfortably in that range, selling for $196,450, Hanifa found.

But one year later, a home that was 80% of the median price would sell for $220,562, meaning even lower-priced homes were no longer affordable for low-income buyers.

The loss of affordability was not limited to Chicago. Hanifa found low-income families could afford a home in just 20 of the country’s 100 largest metro areas in 2021, down from 39 the year before.

“We’re seeing fewer and fewer and fewer of these very big metropolitan business places that are affordable,” Hanifa said. “And Chicago was one of the last few that was on that list.”

Across all of the largest cities, 13.4 million likely first-time homebuyers were priced out, he found.

Price increases ramped up as the housing market took off during the pandemic, but home prices nationwide were rising years before, Hanifa said. The supply of homes for sale has been low, just as a huge influx of millennial homebuyers began looking to purchase. And incomes haven’t risen as fast as prices, he said.

But prices are just one barrier the booming market has thrown in front of prospective homebuyers. Buyers such as Latosha Barnes-Henderson, 49, and her husband also had to find neighborhoods where property taxes weren’t prohibitively high and contend with student loan debt.

Barnes-Henderson’s youngest child was in college and the landlord was raising rent on their home in Matteson, so she and her husband, Kevin Henderson, decided it was time to buy. They were looking for a home between $250,000 and $300,000.

Both had previously owned property, but Barnes-Henderson said she was shocked when she entered the south suburban housing market in June and encountered bids on homes for sometimes $30,000 over the asking price.

“It was like a big war out here,” Barnes-Henderson said.

And on top of the competition, she had past credit challenges that had been resolved, but kept her score lower than desired. Her student loan debt was reflecting on her credit, she said. She and her husband worked with Neighborhood Lending Services, an affiliate of the nonprofit homeownership organization Neighborhood Housing Services, that helped them navigate the situation and the mortgage process, she said.

They were outbid six times before they found a 4-bedroom, 2 ½-bath

house in Country Club Hills with a roomy kitchen and a fenced-in backyard for Henderson’s two Cane Corsos. She said other prospective buyers had visited the house, but their offer for about $5,000 over asking — which was still within their price range — was accepted.

Their situation is likely playing out in other places too. In some of Chicago’s South and West side neighborhoods, competition for homes under $300,000 is fierce and prices have risen sharply, said David Kottman, lending director of Neighborhood Lending Services. And even when buyers can secure homes, they often need work.

The hot housing market has had a trickle-down effect on neighborhoods such as Garfield Park, Humboldt Park and Belmont Cragin, he said. As buyers have been priced out of more expensive neighborhoods, they begin looking at a lower or middle-income neighborhoods where they can make offers over asking. Then residents of those neighborhoods can’t afford the homes for sale.

Unable to buy homes, more people are likely staying in rentals, driving up rent prices, he said.

Where there are affordable homes, they are often on the fringes of the suburban area where land is cheaper, keeping costs lower, LeTourneau said. But that’s not always close to jobs or grocery stores.

Home inventory has been low during the pandemic, and high construction and labor prices have kept small homebuilders out of the market, he said. When new starter homes are built, they are often coming from large developers, who are then keeping the units rentals, he said. “It’s like this vicious loop,” he said.

Historically low interest rates weren’t enough to solve the problem. Without homes to buy, the cost of borrowing didn’t matter, he said.

There’s no single solution, but changing zoning to allow for more dense housing in certain areas could help, LeTourneau said.

Encouraging buyers to consider properties that need some rehab work, along with a certain type of federal purchase and rehab loan to finance it, can also open up options for buyers, Kottman said. So can measures that encourage first-time homebuyers to consider Chicago’s two- and three-flats, where additional rental units can provide owners with another income stream.