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CHICAGO-Downtown condominium and townhouse development could set a record this year, says Appraisal Research Counselors vice president Gail L. Lissner, and next year appears to be just as promising. “From the developers, we’re talking to, we’re expecting 2005 to be another big year,” Lissner says during a forecast panel for the Chicago Association of Realtors.

Since 1990, Lissner says, the market between North Avenue and McCormick Place has seen an average of 2,642 units added to the condominium and townhouse inventory. The record was 6,120 units added in 1999, but Appraisal Research Counselors is projecting 6,046 units this year with another 5,735 units in 2005.

Meanwhile, sales has been the strongest the firm has seen since 1997, and could break the record set in 2000. Through the first nine months of 2004, developers and converters signed 4,961 deals, according to Appraisal Research Counselors, 17 shy of the total during the same period in 2000. This year’s activity is nearly double last year’s performance, according to the firm’s most recent “Residential Benchmark Report.”

Anecdotal evidence that the good times are back include “weekend wonders,” when developers see 100 units or more spoken for by buyers. “It’s hard to believe this is how you buy your next home,” says Lissner, admitting she is hard-pressed to give credit to the driving force behind the hot market. “Is it the Baby Boomer who wants to move back into the city? Is it the speculator who wants to diversify their portfolio? Is it the first-time buyer looking to take advantage of low interest rates?”

LaSalle Bank chief economist Carl Tannenbaum predicts another full percentage point increase in the federal funds rate to 3%, up from 1% at the end of last year. That level, he says, “is not terribly damaging to the real estate industry.” Meanwhile, Tannenbaum predicts GDP growth of 3.5%, unemployment of 5.4% and inflation of 1.8% next year.

While the multifamily market good times should continue next year, Lissner sees 2006 and 2007 as a risky period when a large wave of inventory should hit the market. In addition, there could be 1,500 multifamily rental units converted to condominiums, Lissner adds.

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