Chicago's Lender-Mediated Sales Rise as Foreclosure Backlog Signals Market Normalization

Written by:

Rudi Davis

Date:

13 Apr 2026

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Chicago’s real estate market is showing early signs of normalization after several years of rapid appreciation, with lender-mediated transactions, specifically sales involving foreclosed properties (REO) and short sales, rising from the high one percent to the high two percent range as pandemic-era foreclosure backlogs work through the system.

Distress Metrics Signal a Shift

Scott Newman, Founder and Team Leader at Team Newman powered by KW ONEChicago, says agents are watching the percentage of distressed property sales as a leading indicator of market change. This lender-mediated percentage, which hit historic lows in recent years, has started to climb. “We pay attention to the distress metrics,” Newman explains. “The rate of default is picking up, and the lender-mediated percentage is starting to tick up again.”

The share of lender-mediated sales recently sat in the “high ones” and has moved to the “high twos.” While these numbers remain low compared to previous cycles, the direction matters more than the absolute level. After years of steady decline, a rising share of distressed sales suggests Chicago’s market is entering a new phase.

This increase stems largely from delayed foreclosures entering the market after pandemic-era moratoriums. Properties that would have been foreclosed in 2020 or 2021 are now completing the legal process, creating a backlog. As these homes are listed, they boost the visible share of distressed sales, but the true volume of troubled properties may be even higher as more cases work through the pipeline.

Long-Term Cycles Drive Pricing

Newman places these developments in the context of long-term real estate cycles. Since the 1940s, the U.S. housing market has moved in 10- to 15-year cycles: periods of appreciation, followed by stagnation, then price corrections, before the cycle starts over. “Every 10 to 15 years we’re seeing cycles,” Newman says. “We see appreciation, stagnation, and then some retreat on pricing.”

Chicago’s suburbs, in particular, have seen unprecedented growth, with some areas appreciating more in the past five years than in the previous two decades. While this surge has benefited homeowners, it has set the stage for normalization. As prices climb faster than incomes, fewer buyers can afford to enter the market, gradually increasing the number of sellers and pushing supply and demand closer to balance.

Recognizing these cycles, Newman argues, is not pessimism but realism. “All good things come to an end,” he says. “There’s going to come a time when you see more sellers on the market. That’s going to balance things out, and we’ll start to see signs of slowing down.”

Rate Swings Add Market Volatility

Interest rate changes have added complexity to Chicago’s market. When rates peaked above 7%, most homeowners with mortgages in the 2% to 3% range chose not to move, reducing both inventory and transaction volume. As rates dropped into the high-5% to low-6% range, some of those locked-in owners decided to sell or buy.

Newman notes that falling rates bring both buyers and sellers back into the market. “Now that the rates are in the sixes or high fives, some more of those people jumped in the pool,” he says. While lower rates are beneficial in the short term, they can also intensify competition by unlocking pent-up demand.

This creates a paradox: lower rates temporarily boost sales and keep prices elevated, but they also accelerate new listings as more homeowners feel comfortable moving. Each rate-sensitive wave adds inventory, pushing the market toward a new equilibrium. Once buyer demand and seller supply realign, price appreciation slows or reverses.

Correction, Not a Crash

Describing the past few years, Newman likens Chicago’s appreciation to a rocket climbing at a steep angle. A rapid rise, he cautions, does not guarantee a similarly steep fall. “It doesn’t mean that we’re going to come down from the top at the same pace,” he says.

Newman distinguishes between a market correction and a crash. Today’s lending standards, larger down payments, and stricter appraisal rules create a buffer against a repeat of the 2008 collapse. “There’s a lot more mortgage appraisal legislation in place to protect consumers, down payments, and better standards for lending overall,” he says. These changes make a sharp, sudden price drop less likely.

Still, the absence of crash risk does not mean prices will keep climbing. “There’s just going to come a point where you’re going to see more sellers onto the market,” Newman says. Normalization may unfold gradually, but it marks a significant departure from the recent pattern of continuous appreciation.

Policy and Global Factors Add Risk

Newman also points to geopolitical and policy-related uncertainties as wildcards for the Chicago market. Decisions by governments and similar actors have had immediate and sometimes unpredictable effects on real estate. Trade disputes, international conflicts, and domestic policy changes can all influence buyer and seller behavior, sometimes overnight.

Having worked in real estate for two decades, Newman says he has “never seen as much as far as states and governments doing things that have a major impact on the market, essentially overnight.” These external shocks can quickly alter the market outlook, adding another layer of unpredictability on top of cyclical and rate-driven changes.

The result is a market environment that is less stable than the steady appreciation of recent years. Agents and buyers can no longer assume conditions will remain favorable and must instead prepare for a wider range of outcomes.

Educating Clients Over Speculation

In this less predictable market, Newman’s approach centers on educating clients rather than encouraging them to time the cycle. Many buyers and sellers, he says, underestimate how quickly conditions can change, often assuming they have years to act. “It’s easy to think I’ll just kick the can until next year,” he says.

Newman and his team focus on transparency about risks, cycles, and the range of potential outcomes. “You have to be willing to explain to your client everything that could go wrong, everything that could happen that could change things, all of the variables, the odds, the statistics,” he says. This advisory role, he argues, is more about consulting than sales.

He believes that helping clients understand the full context leads to better decisions. “Even if we work together for six months and you don’t buy for two years, how could you have made that decision without an expert like me right there in your corner guiding you?” he says.

What to Watch in the Months Ahead

Chicago’s distressed property metrics remain low by historical standards, but the recent uptick signals the market is entering a normalization phase. This shift, combined with historical cycle patterns, interest rate movements, and increased external volatility, suggests the era of uninterrupted price growth is ending.

Buyers and sellers who recognize these early warning signs and adjust their expectations will be better prepared for the next 12 to 24 months. Rather than relying on past trends, success in Chicago’s market will depend on staying informed, weighing risks carefully, and working with advisors who can interpret a rapidly changing landscape.