Affordability in the Chicago Area Declines

Affordability in the Chicago Area Declines

Jason Hawkins makes a living arranging mortgages for new homes in the suburbs. But when the 23-year-old loan officer looked for a house of his own, he was disappointed he couldn't find anything close to his Naperville office — or in his price range.

In November, Mr. Hawkins moved into a $245,000 three-bedroom house in DeKalb with fewer amenities than he wanted.

"Housing has gotten expensive and we found we couldn't afford everything we wanted," Mr. Hawkins says. "It would have been a townhouse or a condo in Naperville."
As housing prices soar, a growing number of homebuyers find themselves in similar straits. Chicago-area homes were 8% less affordable last year than a year earlier, according to a measure used by the Federal National Mortgage Assn. (Fannie Mae).
The measure, an index that calculates median income and median-priced homes, shows the Chicago area is still much more affordable than overheated markets like San Francisco and New York. Still, rising prices are likely to force homebuyers to scale back their expectations this year, says Neville Alperstein, a regional manager for Kimball Hill Homes LLC of Rolling Meadows.

"People who thought they could afford a single-family house might choose a duplex or townhouse instead," he says.

The average hourly worker wage in Illinois was up 4.7% in the first 11 months of 2005, according to the Illinois Department of Employment Security. But the average asking price for a house in the Chicago area jumped 11% last year to $323,000, according to Multiple Listing Service of Northern Illinois Inc. in Lisle. A rise in mortgage interest rates of nearly half a percentage point in the past six months and rising prices for building materials such as cement and lumber have combined to make houses less affordable.

Metro-area new-housing starts totaled 45,000 in 2003 and 43,500 in 2004, says Tracy Cross, president of Tracy Cross & Associates Inc. in Schaumburg. Mr. Cross estimates starts fell to around 42,000 units in 2005.

The average price of a new single-family home in metro Chicago rose to $265,000 in the third quarter, up nearly 9% over the same period a year earlier, according to market researcher Metrostudy in Hoffman Estates.

"Builders are aware of the affordability issue and they're concerned," says Christopher Huecksteadt, a Metrostudy director.

Single-family homes in Chicago sold for an average $317,000 in 2005, nearly 16% more than in 2004. With higher prices, volume has slowed. The number sold declined about 5% last year to fewer than 12,300 units.

Meanwhile, the price of suburban homes continues to climb. For the first time, the average asking price in Hinsdale recently crossed the $1-million mark, according to Multiple Listing Service of Northern Illinois.

"Not everybody has a $250,000 income to qualify for these houses," says Tina Porterfield, a broker with Prudential Preferred Properties in Hinsdale.

Crain Communications Inc.