Real estate is always on my mind and in this article, I take a look at the current state of the US real estate market and what factors may be contributing to odd selling behaviors in certain markets.

As we drove around the North Shore of Chicago this weekend, home to some of the most expensive zip codes in the metro area, we were struck by how many for sale signs have gone up in the past few weeks, how slowly homes are selling, and for prices less, in some cases, than the owners paid more than a decade ago.

What a stark contrast to almost everywhere else in the country, where homes for sale are in very short supply, are selling quickly, and often in a bidding war.

It’s a tale of two types of housing markets, the haves and have nots. Markets where homes move in a day, like Denver or San Francisco, versus neighborhoods where homes sit on the market for months or even years.

We’re often asked why markets are behaving in a particular way, why there seem to be more buyers than sellers or sellers than buyers in particular neighborhoods. What is it about a particular neighborhood, metro area, or state that drives a certain type of buying behavior.

We believe it is a confluence of forces, everything from who is moving to or from a city or state (net migration patterns), to the age of a community, the types and numbers of jobs that are available, and the number of new homes that are being constructed (spoiler alert: still way too low all across the country), among other factors.

RentCafe recently analyzed U.S. Census data, focusing on six factors, including the total number of people living in a metropolitan area, median income, home values, the share of inhabitants holding a higher education degree, the overall poverty rate and unemployment rate.

According to its analysis, the top ten most prosperous cities in the U.S. include Odessa, TX, Washington, DC, Charleston, SC, Fontana, CA,North Charleston, SC, Jersey City, NJ, Pearland, TX, Miami, FL, Brownsville, TX, Midland, TX.  The top ten most prosperous large cities (with populations over 300,000) include Washington, D.C., Miami, New York, Fort Worth, Seattle, El Paso, Los Angeles, Baltimore, Boston and Denver.

For a city like Chicago, which ranks #123 on the RentCafe index, and which has a heterogeneous employer base (as opposed to relying on a single industry), an educated workforce, a decent mass transportation system, and ranks as a top three city for biking according to a Redfin report, net negative migration and lower median income, and a growing poorer population seem to be dragging down Chicago’s overall prosperity rating. (The rating doesn’t quantify how a contentious political climate and the lack of a state budget for nearly three years affect these characteristics.)

In Cook County, which encompasses the City of Chicago and suburbs immediately to the North, South, and West of the city, property values are down $100 billion from their prior peak, according to a new report released this month by the Civic Federation. Overall, property values through 2016 are still down 8.5 percent from a decade earlier, before the Great Recession. This is distressing to anyone who is looking to move only to find that they are functionally underwater, with property that’s worth less than the mortgage or about the same. To close, they many still have to bring some cash to the closing, or just accept they will walk away with less than they put in, even after living in the house for well over a decade or even two.

As foreclosures fall to the lowest levels in 12 years, almost all other metropolitan areas have seen housing value rebound smartly. In most areas, it’s tough to buy a decent home at a good price, mostly because sellers aren’t selling (super-low interest rates will do that for you) but also because not enough homes are being built.

That was echoed at this month’s Realtors Legislative Meeting and Trade Expo, in Washington, D.C. “Young adults of today are forming households at a much lower rate than previous generations, and high housing costs contribute to that,” said Len Kiefer, deputy chief economist for Freddie Mac. According to Kiefer, one-third to three-quarters of U.S. markets have an elevated home price-to-income ratio and many major markets, such as Austin, Miami and Portland, are getting close to surpassing their 2008 ratio.

According to the National Association of Home Builders, the Midwest region has seen a decline in housing starts of 8 percent this year. Cold temperatures accounted for some delay in housing starts, but “It’s likely builders see limited opportunity overall because of the longer-term structural issues the Midwest faces, particularly declining population and weak income growth compared to other parts of the country,” noted Freddie Mac Chief Economist Sam Khater.

While more new homes are being built elsewhere in the country, “overall, it’s clear that the economy is still not producing enough new homes because of higher construction costs and labor shortages. This is why home prices continue to outpace wages in much of the country – even as mortgage rates slowly climb closer to 5 percent,” Khater added.  

People have to live somewhere. The state of real estate in most metropolitan areas is very good for sellers, and getting better overall, which means it will be worse for buyers. If there aren’t homes available to purchase, future buyers will either rent, move back to the larger homes of their youth, or buy a larger home with their parents’ help and move with them.