Our latest update of this article gives you the exact info you need to correctly answer the question “should I buy or rent in Chicago”. Higher mortgage interest rates, stubborn inflation and lack of supply have driven costs up for both renters and buyers. However, we’re now seeing some good opportunities in certain neighborhoods for buyers.
We’ll take a look at current market rates, then we’ll explore the pros and cons of buying vs. renting in Chicago.
Current Market Rates
The bad news is rents keep going up…
Here are the median average rent rates and year-over-year increases per Zumper as of September, 2023:
- Studios average Chicago rent is $1,525 up $275/ 22%
- 1 bedroom average Chicago rent is $2,097 up $297/ 17%
- 2 bedroom average Chicago rent is $2,625 up $425/ 19%
- 3 bedroom average Chicago rent is $2,900 up $400/ 16%
- 4 bedroom average Chicago rent is $3,400 up $405/ 14%
Remember these are just the averages. The numbers vary in each Chicago neighborhood, but this gives you a snapshot. Ask us how the numbers look in the neighborhoods you’re considering.
Moreover, inventory of rentals remains tight, especially in popular neighborhoods like the West Loop where our office is located.
So, if you decide renting is better for you than buying, you will have to work hard and compete to find the right place.
The good news is list prices are flat or down from previous years.
Here are the average sale prices year-over-year for all property types in the City of Chicago as of the end of August 2023 per Chicago MLS:
- 1 bedroom or less average Chicago sale price is $229,086 up .8%
- 2 bedroom average Chicago sale price is $356,858 down 3%
- 3 bedroom average Chicago sale price is $491,071 down 2.3%
- 4 bedroom or more average Chicago sale price is $690,904 down 6.4%
Our observations that may assist you:
- Inventory of all property types for sale is down 18.4% year-over-year
- Inventory of condos is down 28.5%
- There are half the number of condos for sale now vs. two years ago
- That said, 1-2 BR condos in some areas of the city like the Loop are “on sale” due to local factors
- As we predicted in last year’s version of this article, rising mortgage rates (now 7+%) have reduced the number of qualified buyers in the market
- Many owners with +/- 3% mortgage rates have “golden handcuffs” and are on the sidelines waiting to step-up to larger homes
- Bidding wars are still happening for ideal properties in turn-key pristine condition, though we don’t see it as often as last year
That’s all very nice but should I buy or rent in Chicago?
“If you plan on staying longer than 2-3 years, buying makes more sense than renting. With current mortgage rates hovering at 7%, we know it’s painful but remember, you date the rate and marry the property. In other words, you can always refinance should rates come down. Moreover, should mortgage rates decline to the 5-6% range, we believe pent-up demand will bust loose and it’ll be a feeding frenzy with a fresh wave of bidding wars for a limited inventory. That said, if you plan on staying 2-3 years or less, renting is still best.”
Next, let’s take a look at the traditional pros and cons of buying vs. renting.
Best Reasons To Buy In Chicago
As always, buy for freedom, to hedge inflation (suddenly more important!), as a vehicle to force savings, to build equity and for the potential tax benefits.
Let’s look at each of these reasons to buy vs. rent in Chicago:
The main reason many people want to buy a home is for the feeling of freedom it brings.
As a home owner you have total freedom to express yourself creatively and productively in your space.
The result for many is a higher quality of life.
For instance, home owners have the freedom of creative expression and choice. For example, you can transform an older kitchen into a modern hub of social activity for friends and family. You own it, you decide!
Of course, if it’s a condo, this freedom may be curtailed by the condo bylaws, rules and regulations.
As A Hedge Against Inflation
Normally, with inflation comes higher rent rates. If you’re a home owner with a fixed mortgage you basically are protected against inflation going forward.
Historically many Chicago renters have felt the pain of annual rent increases. And we are seeing this again in today’s market.
Alternatively, buy a home and you lock in a mortgage interest rate for 5, 7, 10, 15 or 30 years, but you can refinance should rates decline.
Plus, knowing what your monthly payment will be in the long haul provides a sense of peace that renters often don’t enjoy.
To Force Savings
Over the years, home ownership has been a really good investment for many Chicagoans.
Clearly, it’s not without substantial risk as we know from the 2008 real estate crash. But bubble aside, the long term savings value is evident.
Plus, home buyers buy on a huge margin, in some cases with just 3% to 5% down. That’s a deal not found in other investment venues like the stock market.
To Build Equity
When deciding whether to buy or rent in Chicago, building equity may be one of your primary reasons.
Over the past 75 years buying a home has been a great way to build personal wealth.
Each month a portion of your mortgage payment is applied toward paying down your loan principal.
So, assuming home prices appreciate, when you sell your home, you’ll receive the principal you paid in plus money from any market appreciation.
This sounds pretty good compared to paying rent, a 100% monthly expense. Money gone.
For The Tax Incentives
The tax incentives for many home buyers in Chicago are still pretty significant.
Those living in markets with high local property taxes and super expensive housing (think NYC and Silicon Valley) are not seeing the tax incentives they did prior to the federal tax reform.
However, mortgage interest and property taxes remain tax deductible for many Chicago home buyers. Rent however is generally not tax deductible.
In addition to annual tax deductions, home owners can often make money on the sale of their home and take profits tax free within certain limits. Talk with your tax accountant about your specific tax circumstances.
Resources for buyers:
Best Reasons To Rent In Chicago
Rent for career and financial flexibility, to save a down payment and to avoid repair bills, real estate taxes and real estate market risk.
Here are the best reasons to rent vs. buy in Chicago:
For The Flexibility
These days flexibility seems to matter more than ever. For many the best reason to rent is maintain career and / or financial flexibility.
You’ll want the flexibility that renting provides if you expect a job change, you get a promotion to a new market or meet that special someone who lives in Atlanta. (Note: if that happens check out our sister company Best Atlanta Properties!)
Consider your time horizon. If you can’t see beyond two years then you should probably rent. You’ll appreciate that flexibility when you want to make a change.
Or rent if you want the financial flexibility to invest your money somewhere besides a home. For example building a small business may be a better use of your capital at the moment.
To Save Up
Say you want to put 5, 10, 20% down on a home purchase but need to save more to get there. Then rent and save until you have the money needed. It this is the case you want to be sure it’s actually cheaper to rent than buy in Chicago. To answer that question right now, run the numbers.
Here are two excellent calculators for automatically doing the math for your exact situation:
For The Lower Expenses
Owning a home can be expensive at times. If you’d prefer not to pay for those things that go wrong then rent. For example, if you rent and the HVAC fails, of course the landlord pays the big bucks to replace it.
To Avoid Taxes
Let’s face it, real estate taxes in Downtown Chicago neighborhoods are really high. And at the moment it seems they will only go higher.
For example, a spacious 2 bed / 2 bath West Loop condo can come with real estate taxes of more than $10,000 a year. In the neighborhoods we serve we see property taxes ranging from $4.25 to $6.50 per square foot.
If you’d rather not be committed to pay those taxes, renting might be best.
To Reduce Market Risk
If you believe that in the next few years home prices will go down, you may want to rent a place to avoid market risk.
When renting you can manage risk by negotiation a fixed rent for a second or third year in advance.
Resources for renters:
Conclusion: Should You Buy Or Rent In Chicago?
We hope this discussion of the pros and cons of buying vs renting in Chicago has helped determine the best course of action for your situation.
If you have further questions or want to get started, ask us, we’re here to help you buy or rent in Chicago.