Redfin, which is undoubtedly my favorite real estate website, recently posted an article discussing price trends in the Chicago real estate market. Beyond the standard statistics of price trends, year-over-year sales figures, etc, what I personally thought was most interesting was their comment on most expensive neighborhoods.
Per the article:
BUCKTOWN WAS THE CITY’S MOST EXPENSIVE NEIGHBORHOOD, WITH A MEDIAN SALE PRICE OF $560,000, FOLLOWED BY ROSCOE VILLAGE AT $535,000. ONLY TWO OTHERS–UKRANIAN VILLAGE AND NORTH CENTER–HAD MEDIAN PRICES OF MORE THAN $500,000.
While I in no way question the veracity of this claim, I do think it needs to be slightly caveated, as the word “expensive” can have several definitions. The reason a Bucktown or Ukranian Village (!) outranks the historically expensive neighborhoods like Gold Coast or Lincoln Park is primarily due to the composition of property types in these areas. For example, if we look at all closed sales in the Gold Coast for the last 3 months on redfin.com (as of 3/26/16), we see that 76 out of 83 were condos. This makes sense, as the Gold Coast is a very high-density living area with primarily high-rise buildings and only a handful of (very expensive) single family homes. Only 5 of those 83 sales (the remaining two were townhouses) were single family homes, and they had a median sales price of $2.1mm. The median sale price for all properties in Gold Coast was only $452,715*, however. This is because there are far more smaller condos than larger single family homes or large, newly built condos in the neighborhood. In fact, 22 out of the 83 sales (27%) were 1-bedroom condominiums with an average sale price of $175,000, which will greatly drag down the average sale price of the area.
Bucktown, by comparison, had an median sale price of $494,450* across all property types (excluding multifamily and land sales) over the last 3 months. The primary driver for Bucktown having a higher median sales price than Gold Coast is, as mentioned above, the property-type composition. While the Gold Coast only had 5 single family home (SFH) sales out of 83 (6%), Bucktown had 22 out of 78 (28%). The median price of a Bucktown SFH was $967,500, which is nearly $1.3mm less than the Gold Coast. We begin here to see the difference of property composition between the two neighborhoods. Gold Coast had the same percentage of 1-bed condos sell (27%) as Bucktown did single family homes (28%). In fact, Bucktown only had two 1-bedroom condos sell in the last 3 months. This heavy weighting towards single family homes is what causes Bucktown to have a higher median sale price, and thus labeled as “more expensive.”
While an argument can certainly be made to say that since the median price across all closed sales is higher, Bucktown is therefore more expensive, I personally think the definition of “expensive” should take into account what you are getting for your money. In this case, it makes sense to look at what people are paying per square foot. This helps eliminate much of the the effect of property-type composition between the two neighborhoods. If we look at the last 3 months, Gold Coast median $ / Sq Ft was $338 vs. Bucktown at $294. Effectively, people get “less” for their money in the Gold Coast, which to me means it is the more “expensive” neighborhood. While the definition of “expensive” is somewhat of a philosophical debate (absolute v. relative cost), I think the higher $ / Sq Ft figure pretty definitively paints the Gold Coast as a more “desirable” area, when compared to Bucktown, since people are willing to pay more to get less there.
*The numbers I am citing are different from the article as it was posted a month before I did this analysis.