How long will million-dollar homes stay red hot? 2022 could leave a record-setting 2021 in the dust. But it's far from certain that luxury home sales will keep pace for the rest of this year. Here's what agents expect.

There was stiff competition among house hunters when a Bucktown home created from a former funeral parlor went up for sale in April. After 20 showings in four days, the two-flat—with architectural details like stained-glass windows and a barrel-arched ceiling in the chapel turned living room—went under contract to a buyer. The sale closed in early June at the seller’s full asking price: $1.45 million. Homes like this one, priced at $1 million and up, “were red hot in the first half of the year,” said Carrie McCormick, the @properties Christie’s International Real Estate agent who represented the onetime funeral home.

In the first six months of 2022, there were 2,571 homes sold at $1 million or more in the six-county metro area, according to Midwest Real Estate Data. That’s an increase of nearly 8.7% from the first half of 2021, which went on to be a record-setting year for luxury home sales, with a year-end total of 3,480 sales. The increase in luxury sales was bigger metro-wide than in the city, where there were 1,126 sales at $1 million or more, up 4.6% from the same time last year. That’s in large part because of the difficulties in the downtown condo market, including crime and a slower-than-expected return of workers downtown.

Elsewhere in the city, the $1 million-and-up-market “was crazy in the first half of the year,” said Brad Lippitz, a Compass agent who represented a house on Balmoral Avenue in Lakewood Balmoral that also sold fast and at its full asking price, just under $2.5 million. Demand from buyers, he said, “was huge.” If fact, the sales tally for just the first six months this year is bigger than the full-year total in three of the five years before the pandemic.

Another factor contributing to the current boom: the fast-rising cost of luxurious rentals, said Janet Owen, a Berkshire Hathaway HomeServices Chicago agent. In recent years, snowbirds and other owners of multiple homes have often chosen to rent in Chicago, but recently “those who want to stay in the city have been stunned by high rental prices, so they are buying,” Owen said in an email. That’s a byproduct of flat or slow-growing for-sale prices in the Gold Coast and other downtown neighborhoods. If the pace of luxury home sales keeps up, 2022 will end with 2021’s record in the dust.

But staying on pace is far from certain. With interest rates rising sharply in response to the Federal Reserve’s effort to curb inflation, and with recession clouds on the horizon, many agents say they expect sales to cool off. An increase of 1 percentage point on a 30-year loan of $1 million boosts the monthly payment on the loan by about $550. Interest rates have gone up more than 2 percentage points so far this year and are expected to go higher. “It makes a big enough difference in the payment,” said Joe Wright, a City & Field Real Estate agent. Since interest rates started their climb, he said, “I’ve had a few clients in that price point who’ve bowed out.”

Others have accelerated their house hunt, hoping to land one before interest rates go even higher. In early April, “right on the cusp of the interest rate increases,” Wright said, a five-bedroom house on Evergreen Street in Elmhurst came on the market at just under $1.28 million. Clients he was working with, who had been looking at homes for a while, “felt a little more pressure with rates going up” and put the house under contract three days after it went up for sale. The transaction closed in June at the full asking price.

Pam MacPherson, an @properties Christie’s International Real Estate agent based in Winnetka, represented clients who bought a house in Glenview that wasn’t even in the million-dollar category until a bidding war broke out. The five-bedroom house on Vantage Lane went up for sale April 28 with an asking price of $999,500. Her clients put it under contract four days later and bought the house June 30 for $1.12 million. They paid 12% more than the asking price. MacPherson said that people shopping in the $1 million range “are being aggressive because they want to get in now, when they can go a little over budget, versus after rates go higher and the monthly payment is so much bigger.”

Wright, MacPherson and McCormick all said they expect the second half of the year to be slower in the luxury market as economic clouds gather—but to be clear, none of them said they expect it to be slow. “Normal is what we expect,” MacPherson said. “It will look more like a normal market.”