A challenging market for high-end homes

Chris Jacobs, broker associate with Century 21 - The Pinnacle Group in Inverness, is cautiously optimistic that 2017 will be a good year for real estate in that town and surrounding communities where he caters to medium- to high-end buyers and sellers.

"The last couple of years have been relatively flat. But I have been seeing more general optimism among both buyers and sellers since the (presidential) election and that is making me cautiously optimistic this year," he said.

"The reality is that we lost an entire generation of move-up buyers during the recession," Jacobs said. "Generation Xers like me probably would have moved up a decade ago but the recession kept us where we were. Now we have aged enough - and so have our families - that it no longer makes sense for us to move up.

"So now the move-up process is starting again with the millennials, but that takes time. They aren't going to start out buying a $1 million home. They have to work their way up to that. Consequently, those living in expensive homes have probably stayed longer than they expected to and there are many who just never made the move to that large house," he said.

Jacobs said the market has reached a point where homes costing less than $400,000 are selling very quickly and updated homes between $400,000 and $800,000 that are move-in ready - and priced correctly - are enjoying relatively short market times. Those over $800,000, however, still have their challenges, he said.

"Most of the people who are buying the upper-end homes today are relocations from outside the area, relocations within the area to main-floor living, and a few move-ups," Jacobs said.

"Buyers are no longer viewing the purchase of a high-end home as an investment like they did 15 years ago. Instead, they are making a lifestyle choice when they buy these homes. This is where they want to raise their family, educate their children and live. They do not expect to make a large amount of money on the (re)sale of their primary residence. They understand that they need to make their money elsewhere," he said.

High property tax rates are also depressing sales in the high-end market. Jacobs said even if a family can afford to buy the house, they are often choosing not to pay the high taxes because they understand those are a recurring expense that can never be paid off. Local schools, municipalities and counties are driving these costs and, according to Jacobs, making the decision to retire out-of-state much easier for older Illinoisans.

Interestingly, Jacobs said that the difference between markets has been magnified in recent years.

"I can start in Inverness and drive 20 minutes in three different directions and find three completely different markets. That has always been true to a certain degree, but it has become even truer recently. The Arlington Heights market, for instance, is stronger right now than the market in Inverness."

The Chicago-area real estate market is fragmented, so it is almost impossible to make any sweeping statements about local real estate as a whole, Jacobs said. However, he acknowledged that the largest percentage of current home sales are taking place at the lower end of the market as millennials get started with their families and first homes.

In addition, single-family houses continue to see stronger sales in most areas than condominiums and even townhouses.

"The majority of buyers prefer the autonomy and privacy of a single-family home. They don't want to make important decisions in conjunction with 80 of their not-so-close friends," he said.

Finally, Jacobs said, foreclosures and short sales are still out there in the marketplace, but they are no longer driving market pricing like they were six years ago.

Jacobs can be reached at (847) 401-4859 or by email at Chris@C21tpg.com.