It’s no secret that home prices, as well as mortgage rates, have been steadily climbing (you can see the lowest mortgage rates you might qualify for here). Nationally, home prices increased upwards of 20% in April 2022, compared to the same month last year, according to CoreLogic.
That there is an affordability crunch is backed by a number of other data sources. For example, Black Knight wrote in a recent mortgage report: “When comparing the rise in housing costs to current income levels, it now takes 33.7% of the median household income to purchase the average priced home, within a whisper of the 34.1% all time high at its peak in June 2006.” What’s more, the majority of housing markets in the U.S. are now overvalued, according to the latest data from CoreLogic. That said, of the 20 largest, two major housing markets are actually considered “normal,” according to CoreLogic data.
Those two are Chicago and St. Louis, which reflects the fact that buyers in that same city can generally afford homes in the area. Meanwhile, an “overvalued” housing market happens when prices exceed the general ability of buyers in that same city to afford a house; often out-of-region buyers and large investors have driven up prices in these markets.
Does this mean you should move to the Windy City or the Gateway to the West? Well, not so fast: Here’s what might be happening in these markets.
In the case of Chicago, prices continue to rise, too, but at least one factor is working to normalize the market: condos. One of the quirks of the Chicago housing market is the sheer number of condos that exist downtown – at least 6,000 units are on the market right now, according to Realtor.com – and that is one factor dragging down the median home price. For example, this condo in the Second City has been listed multiple times, and since its listing, the price has been cut more than once.
Condos are popular in crowded metro areas, which is why they abound in Chicago, but after the pandemic began, people sought more space. Condos are more valuable to buyers now if they have a balcony over access to a gym.
In the case of St. Louis, it may be an example of a city that might be the victim of market inefficiency, says Tony Nipert, an expert on development, public transportation, and public policy in St. Louis. In simple terms, this means that home prices in the city seem lower than they should be considering the amenities the city offers, and when compared to similar cities. St. Louis has walkable neighborhoods, robust public transportation, a great food scene, professional sports teams, impressive city skylines and more.
Housing prices in the city of St. Louis continue to rise just like most other cities in the U.S.; and readers should note that in north St. Louis County, investors are reportedly indeed buying up a record share of homes at prices above asking. However, on average, prices in the larger metro area continue to exceed prices in the city proper, which is a rarity.
Read More: All but two of the 20 largest housing markets are ‘overvalued,’ a new analysis finds