Cat matched to UIC for fellowship next year and the family is moving over to Chicago (target living in the Loop for her work). With a new city comes the same old question: Buy or Rent? Let's look at the pros and cons:

PROs

Chicago has lagged the recovery. Below is the Case-Shiller graph of Chicago vs the 20 city composite vs NYC. You can see Chicago has lagged both NYC and the composite. Chicago is only up 34% since 2000 while NYC is up over 80%.

In [9]:

%matplotlib inline
import pandas as pd
import numpy as np
import matplotlib.pyplot as plt

In [10]:

caseshiller = pd.read_csv('caseshiller.csv', index_col = 'Date', parse_dates=True)

In [11]:

caseshiller.plot()

Out[11]:

<matplotlib.axes._subplots.AxesSubplot at 0xf2b390>

In [28]:

ratio = caseshiller["Chicago"]/caseshiller["New York"]
ratio.plot(title="Ratio of Chicago Index to New York")

Out[28]:

<matplotlib.axes._subplots.AxesSubplot at 0xd48cf8>

In [24]:

caseshiller[-1:]/100-1

Out[24]:

	Chicago	20-City	New York
Date
Aug-15	0.3413	0.8247	0.8116

Reasonable rental yields/cap rates. Scanning across properties in the Loop, it's still possible to get 5% cap rates vs it was hard even finding anything > 3% in NYC. Rents seem to be ~60% of what it costs to live in a similar quality place in NYC so there's some rent appreciation potential there as well vs I don't see how rents can keep going up in NYC.

CONs

Returns suck. Real estate returns have lagged S&P equity returns. The main benefit really is in the financing (low long term rates with put optionality). However knowing my general risk-averse nature, I doubt I would use much leverage or take full advantage of the put. If I wanted levered market exposure, I could buy S&P futures with a lower leverage ratio to account for the vol difference and still come out ahead economically.
Rates. Fed may raise rates next year which following a line of reasoning may lead to lower house prices. Not too concerned about this as the general correlation of housing prices to rates hasn't been that strong and I think other factors like inventory levels / household formation will dominate over rates.
Convenience. More things to worry about with owning.
It's cold out there. Despite favorable economic reasons of living in Chicago vs other cities, doubt Cat wants to live there long term.

So on a relative basis, Chicago seems to be a decent city to buy but on an absolute basis my feeling has always been biased towards renting vs buying. With that said, anyone know any good houses/brokers out in Chicago?

Moving to Chicago

PROs

CONs