Unfortunately, nobody can give you any definitive answers about what the market will be like in 3-5 years here in Chicago. House prices are not increasingly as wildly as they did a few years ago, but people are still profiting after holding on to homes for at least 3 years.
Seller transaction costs can be expensive (i.e. commissions, transfer taxes, title costs, etc.), and will take a bite out of your profit, but profiting at all and enjoying the tax benefits of home ownership is, in my opinion, better than seeing $0 profit, and, in fact, mostly deficit, after renting for just as long.
Let me ask you this: When you're time is up in Chicago, is there any reason you would have to sell? Because if your fear is having to sell at a loss, if you don't HAVE to sell, be sure you purchase something that would be easy to rent: i.e., a south loop condo (another good rental area) or a multi-unit in Hyde Park. This way, you can hold on to your investment as long as you might need to before selling. Remember, though, that once you vacate the premises, you will not benefit from homeowner exemption on property taxes, so you will have to account for that extra expense in your monthly carrying costs.
Ken raises a good point about multi-units. If you are up to being a live-in landlord, and you actually want to live in Hyde Park or close to it, because the rental market is booming in that area, it could be a good investment for you.
Good luck on your decision. I have a dear friend who is Associate Dean of Students at U of C. She really enjoys the University.
I would purchase based on your timeframe. The South Loop continues to expand with numerous projects having been completed over the past 5 years and others either coming out of the ground or near completion. Absorption has been steady and there's demand for the area. However, some developers are holding off on projects where the financials are a little tight and this may lead to a slowdown in the pace of growth. A 2 or 3 flat if available in the area you're considering may be a better option depending on your personal needs. It would allow you to invest and have others contribute to the mortgage whilst you benefit from the tax deductions associated with owning an Investment property. Should you decide to move on you can retain the building and rent out the units. A single family home whilst providing you with the benefits of space etc may not provide you with the same level of flexibility when you decide to move-on. As always, lender & tax implications apply to being an owner occupier so always consult an accountant/tax advisor in a ddition to a good Realtor when making such a decision.
Come on down :)