Home prices in Chicago are jumping and not by just a skip or a hop. The Windy City watched its home prices jump by 11 percent in November 2013 from a year prior. This is the biggest increase in value in nearly 25 years, according to S&P/Case-Shiller data.
"They flocked in the early recovery to places such as Phoenix and Las Vegas and parts of California, and Chicago and some other markets lagged behind a little bit," Lance Ramella, a senior vice president at John Burns Real Estate Consulting in suburban Chicago, told Bloomberg. "Chicago just wasn't providing that yet and now it is."
While many price gains are starting to drop off around the country, Chicago was one of nine areas in the S&P/Case-Shiller's 20-city index to garner a year-over-year increase in housing values. Ramella said the rise in Chicago's home values has turned the average residential investor away from the market, but many large investment groups with money to spend are heading into the area.
"They're looking for distressed property and a lot of runway for appreciation," Ramella said. "We've got a lot more room to appreciate here."
According to Geoff Smith, executive director of the Institute for Housing Studies at DePaul University in Chicago, investors compiled around 20 percent of the purchases made in the first half of last year.
Chicago homeowners who have emerged from an underwater home thanks to the rise in values should consider a home equity line of credit if they hope to begin any home improvement plans this spring or summer. A home equity line of credit allows a homeowner to put their home up as collateral for a line of credit in return. A homeowner can then use this line of credit on home improvements, student loan repayment or a down payment on a car.
Is the housing rise sustainable?
Smith told Bloomberg that for all the attention Chicago is now receiving from investors and financial groups, there might not be problems if the prices soar too high. If that happens, Smith wonders if there will be enough buyers, owners and occupiers to fill the hole.
"That's kind of the big question in terms of how sustainable the recent price gains in the housing market are," he said. For investors, "they see opportunity, but if prices go up then the math so to speak might not work as well for them."
Brad Hunter, the chief economist with Metrostudy, a housing-research firm, said two areas of note that have held Chicago's housing market back in the past include a high unemployment rate and a large number of foreclosures.
In December, Chicagoland had an unemployment rate of 8.3 percent. Unemployment in the city and surrounding suburbs was as high as 11.9 percent in January 2010.
Where are the other big gains???
Las Vegas had the largest pricing gain of a major market year over year in November, trekking up 27.3 percent from a year ago, according to the Chicago Tribune.
"Beginning June 2012, we saw a steady rise in year-over-year increases," David Blitzer, chairman of S&P Dow Jones Indices' index committee, said in a statement. "November continued that trend with another strong month although the rate of increase slowed."
Other large annual gains in November came from San Francisco (23.2 percent), Los Angeles (21.6 percent) and Atlanta (18.5 percent).
"Home prices continue to rise despite last May's jump in mortgage interest rates," he added. "Combined with low inflation, 1.5 percent in 2013, homeowners are enjoying real appreciation and rising equity values. While housing will make further contributions to the economy in 2014, the pace of price gains is likely to slow during the year."