September 3, 2025
COMING 2026 HOUSING MARKET BOOM WILL BE A BUST FOR SELLERS

There is no looming pot of gold. There is an enormous amount of pent-up demand among first-time potential home buyers for housing they can afford and among current downscale owners to upscale. And there is an equally enormous pent-up demand among home owners/sellers to unload their property for a bundle of cash.

But that is NOT GOING TO HAPPEN. There will be no bundle of cash for sellers in 2026, no pot of gold, no $500-700,000 pay day, no seller’s market. And that is because potential buyers simply cannot now and cannot later afford  (nor get) a 400-600K mortgage; nor make a sufficient profit on their property sale. Quite simply you cannot sell if there is no money to buy. The coming glut of over-priced homes on the market means plunging prices and frustrated sellers.

The current mortgage rate as determined by the Federal Reserve (Fed) and outgoing chair Jerome  Powell (whose term expires next May) is 6.6 percent. That means a fixed-rate 30-year loan of, say, $400,000, is going to cost over 26K-a year in interest. Add to that the mortgage principal, amortized over 30 years (360 months) and it’s another $1,100. Add to that property taxes – which range anywhere from $5,000 to $20,000 twice a year in Cook County -- and insurance (or assessments for condos) and the monthly “nut” (called PITI for principal, interest, taxes, and insurance) starts at around $6,000, or at least $60-70,000/year.

The mortgage lenders’ golden rule is that a property owner’s nut should not be more than 30 percent of net family income.  Let’s say a couple wants a $500,000 loan to buy a $800,000 “starter” house; factor in PITI and their net joint monthly income under Rule 30 would have to be around 200K.

With that level of income you can buy a million-plus Gold Coast or River North condo or a house in Ravenswood, Bucktown, Wicker Park, Glenview, Glencoe, Wilmette, Highland Park or Lake Forest – and  probably in Evanston, Oak Park, Naperville, Park Ridge. But not in some parts of the Chicago’s Northwest Side or in working-class suburbs like Niles, Skokie and Harwood Heights. That means few 800K offers.

Another cardinal lender rule is a 20 percent down payment which comes either from equity in a home sold or liquid savings. Ask any renting Gen X, Y or Zer how much cash “availability” they have. So equities in less upscale neighborhoods are not going to be huge. And if a buyer gets a federally-insured mortgage with less than 20 percent down then there’s PMI, another $150/month for mortgage insurance to pay for foreclosures. The landmark 2024 anti-trust case won by the National Association of Realtors (NAR) put another closing cost burden on buyers

It was customary for sellers to pay a 5 percent sales commission, split between the listing and buyer’s agents. Not anymore – unless the seller agrees in writing. And why would they? On a 600K sale that’s 30 grand. Under NAR the buyer now pays their own realtor at a price they negotiate.

I was a lawyer for 44 years, did 2 to 4 closings per month, and have seen booms and busts in the market. Way back in the 1970s under presidents Ford and Carter an oil embargo and surging inflation pushed interest rates near 20 percent. A recession ensued, housing construction and home-buying ceased and owner-financed sales became the norm until Reagan became president – a 10-year bust.

George W. Bush in the 2000s had the notion that owning a home was a “right” and encouraged lenders to give “zero down” loans of 80 percent-to-value (often inflated) with the remaining 20 percent an unsecured “equity loan” predicated on 5-10 percent/year “anticipated” rises in housing value.  The second loan was at an “adjustable” rate (ARM) with a 3-5 year “balloon” requiring payment-in-full. Borrowers’ incomes were not verified and credit-worthiness irrelevant.  

There then was a rash of flipping with “knockdowns” and McMansions, a bonanza for RE lawyers and a rush by Wall Street investment bankers to purchase the faulty mortgages, bundle them as Grade A investments and sell them to their gullible customers. Then, of course, in 2007 came a cascade of defaults, then a housing and stock market crash, government bail-out, bankruptcies and 5-year recession. The housing market didn’t recover until 2012 and boomed during Trump One with 3 percent loan rates.

The next bust was COVID in 2020. To avert massive unemployment, an economic collapse and global depression the Fed started printing money to subsidize people and local governments so as to maintain their liquidity and keep them spending on goods and services. This spiked inflation, which hit 9 percent in 2022, and caused the Fed to spike interest rates to cool inflation. By 2024 they were over 7 percent. Home sales, except those related to death or forced relocation, were non-existent. The national debt zoomed to over $30 trillion.

There was and still is minimal inventory of property for sale, said longtime Northwest Side realtor Dympna Fay-Hart, and that won’t change until loan rates drop to 3-4 percent. “A lot of owners have 3 percent loans, and they’re not selling,” she added. What is/has happened is that politicians keep spending and pass that along to property owners and that includes landlords who pass it along to renters who are the delayed home-buying generation. Hence, their savings are negligible. And homeowners who have eaten those costs expect to recoup those losses when they sell.

Inflation is now down to an annualized 2.1 percent, exactly at the Fed’s target. There is no rational reason to keep the prime rate at 6.6 percent except to thwart Trump getting credit. The Fed will reduce the prime by a point this month, to 5.6 percent. But Trump will appoint a new chair in 2026 who will slash the rate to 4 and then 3. For a 400K borrower that means their loan rate nut drops to 16K and then 12K/year. The housing market will explode.

An interesting corollary is the fledgling “home rental” industry. These are private companies of investors who buy properties for rental, not resale. This takes homes off the market but also is a lifeline for a buyer who can’t afford to buy.  

The lease is triple-net meaning the tenant pays property taxes, municipal fees (water, garbage) and assessments. The lease is 3 years and renewable at will of owner. The upside is no upfront money, no repairs during occupancy and immediate occupancy. The downside is that the rent (usually starting about 5K per month) has no ceiling and the tenant has no equity.

Some companies claim they will make a “fair offer” to buy “as-is” with no repairs, de-junking  or clean-up. That’s disingenuous.  The cash buyer makes a profit only when they pay 70 percent of the property’s actual market value, according to Fay-Hart, who mentioned the hoarders syndrome. Over time homeowners accumulate a whole lot of stuff in their basement or garage, especially if they’ve lived there for 2 generations (30 years) or more.

For sellers, the realtor the junk-it-yourself option is much cheaper, especially since realtor costs are halved, but the CASH-NOW option offers no stress and no hassle. Just take your money and walk.

Then there’s the political factor.

Is the quality-of-life where you are living worth you staying? Or is your own quality-of-life such that you need to get out, even at a lessened sale profit? For aging Chicagoans the allure of relocating to FL, TX, NV or AZ is becoming irresistible.

Chicago is in a $1.2 billion “hole” in 2026’s budget and city government is underfunded. Leaders want Springfield to bail it out by the end of the year. And the CPS needs millions to cover its pension shortfall. Last year the city had a $17.1 billion budget.

Jesus, where has the money gone? Let me guess, "personnel costs?" How did you all blow through the federal COVID money and left nothing in the reserves? Someone’s been living like a hog on the taxpayers’ dime.

Taxpayers are always being asked to contribute just a little bit more while politicians play with real money like it was Monopoly money and NOTHING ever gets results.

It’s like those “Community Chest” cards against city residents. “Pay hospital fees of $100,” “Pay school fees of $50,” “You are assessed for street repair. $40 per house. $115 per hotel,” or the perennial favorite “Go to jail. Got directly to f-ing jail, do not pass go, do not collect $200.” Or something to that effect.

With that in mind, it was always my expectation that I would die in my house in Norwood Park. But I’m rethinking that. Texas sounds nice.

Read more Analysis & Opinion from Russ Stewart at Russstewart.com

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