Housing Price Forecasts Illinois and Chicago PMSA, August ... - MrEd

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Aug 21, 2013 - inventory still adds uncertainties into the trend of the housing market. At the average ratio of foreclos
Housing Price Forecasts Illinois and Chicago PMSA, August 2013

Presented To

Illinois Association of Realtors From R

E

A

L

Regional Economics Applications Laboratory, Institute of Government and Public Affairs University of Illinois

August 21, 2013

Contact:

Geoffrey Hewings 217-333-4740 ([email protected]) Xian Fang 217-244-7226 ([email protected])

Housing Forecast

August 2013

2

Housing Price Forecast: Illinois and Chicago PMSA, August 2013 The Housing Market In July, the housing market condition in Illinois and the Chicago PMSA maintained the momentum from the last few months. Sales in Illinois and the Chicago PMSA reached their highest values since 2008. 16,012 houses were sold in Illinois, 28.5% more than a year ago. In the Chicago PMSA, 11,897 houses were sold, 36.1% more than last July. The median price was $169,000 in Illinois, 14.2% up from July last year. Comparable figures for the Chicago PMSA were $201,000 with an annual increase rate of 18.2%. This momentum is forecast to continue for the next three months. The price forecast indicates continuing annual increases in median prices for August, September and October. In Illinois, the median price is forecast to rise by 14.6% in August, 15.0% in September and 15.5 % in October. For the Chicago PMSA, the comparable figures are 19.0% in August, followed by 19.6% for September and 20.0% for October. The sales forecast for August, September and October 2013 suggests continuing gains for Illinois and the Chicago PMSA. On a year-overyear basis, the three month average forecasts point to increases of 25.7% to 34.8% for Illinois and 30.8% to 41.6% for Chicago PMSA. High sales reflect home-buyers’ confidence in current conditions as two consumer confidence indexes consistently indicate. With the increasing mortgage interest rates, more demand of homes is observed in the short run before the rates become too high (although relative to the historical period, the rates are still low). However, in the long run, housing demand can be hindered by the high mortgage interest rates. Affordability for homes is influenced directly by the cost of borrowing. The National Association of Home Builders/Wells Fargo Housing Opportunity Index (HOI) revealed a slip in nationwide housing affordability. According to the index, 69.3% of the homes sold in the second quarter were affordable to households with incomes above the statewide median value of $64,400. This is the first time since late 2008 that this measure went below 70%. Under this condition, the ongoing discussion on the potential elimination of mortgage interest deduction (MID) becomes more crucial to home-buyers’ buying plans as well. Increasing mortgage interest rates plus potential elimination of MID and uncertain government bond buying all together can definitely make potential home buyers unclear about future conditions and thus hesitate about their home-buying decisions. Thus, housing demands are being buoyed by some factors and dampened by others. The Obama administration is calling for private lending to be the backbone in the housing market. According to the Survey of Construction (SOC) by Census Bureau, the share of loans was 86% conventional lending and 6% FHA/VA insured loans during 2005-2007. However, in 2012, only 59% of loans were from conventional lending and 24% government insured loans. A return to an increased share by private lending would prove to be an important stimulus for the housing market.

Housing Forecast

August 2013

3

On the supply side, the listings for all price ranges were decreasing with homes at the lower price end decreasing the most. Listings for homes priced below $200K decreased by -30% for Illinois and -47% for Chicago PMSA. The decline in the low price sales and listings were accompanied by a decrease in the foreclosure inventory 1 in the pipeline. This signals the possibility of reducing stress in the housing market to some extent, although the shadow inventory still adds uncertainties into the trend of the housing market. At the average ratio of foreclosure filings to foreclosure sales for the past 30 months, the foreclosure inventory is forecast to return to the pre-bubble level2 by September 2014. The Housing Market – Current Condition  In July, both Illinois and the Chicago PMSA experienced notable gains in sales and median prices on a yearly base. 16,012 houses were sold in Illinois, 28.5% more than a year ago. In the Chicago PMSA, 11,897 houses were sold, 36.1% more than last July. The median price was $169,000 in Illinois, 14.2% up from July last year. Comparable figures for the Chicago PMSA were $201,000 with an annual increase rate of 18.2%. (Reference: Illinois and Chicago PMSA Total Home Sales and Median Home Sales Price figures; Forecast for August 2013 report table)  In July, at the latest average annual pending sales rate, Illinois had enough housing inventory for 5.2 months3 (down from 8.8 months a year ago). In the Chicago PMSA, the comparable figure was 3.5 months (down from 7.3 months a year ago). The housing inventory for sale has been decreasing for both Illinois and Chicago PMSA since 2008. Homes priced lower than $200K decreased most in their inventory by -30% for Illinois and -47% for Chicago PMSA. (Reference: Illinois and Chicago PMSA Annual Months’ Supply by Price Range figures)  In July, homes priced at the lowest price end had the largest decrease in their share of total sales compared to a year ago. For Illinois, homes priced below $100K held a market share that decreased to 26.9% from 31.5% a year ago. The comparable figure for the Chicago PMSA was 20.6% from 26.4%. (Reference: Illinois and Chicago PMSA Price Stratification figures) The Housing Market – Forecast and Future Condition  The price forecast indicates continuing annual increases in median prices for August, September and October. In Illinois, the median price is forecast to rise by 14.6% in August, 15.0% in September and 15.5 % in October. For the Chicago PMSA, the comparable figures are 19.0% in August, followed by 19.6% for September and 20.0% for October. (Reference: Forecast for August 2013 report table)

1

Foreclosure inventory is defined as any case between new filing and foreclosure auction. Since more than half of the filed foreclosure were not closed with an auction and the data cannot track those, assumptions are made to project closing date for those cases. 2 Pre-bubble level is defined as the average inventory level from 1997 to 2005. Only Cook County has the data back to then, therefore the Chicago PMSA average level is projected according to Cook County level and its historic inventory portion out of Chicago PMSA from 2006 till now. 3 Months’ supply of inventory is defined as inventory of homes for sale at the end of the month divided by the average monthly pending sales in the last twelve months.

Housing Forecast







August 2013

4

The sales forecast for August, September and October 2013 suggests continuing gains for Illinois and the Chicago PMSA. On a year-over-year basis, the three month average forecasts point to increases of 25.7% to 34.8% for Illinois and 30.8% to 41.6% for Chicago PMSA. (Reference: Forecast for August 2013 report table) The pending home sales index4 is a leading indicator based on contract signings. This July, homes put under contract increased on a yearly basis but decreased slightly from a month ago. The pending home sales index is 168.5 (2008=100) in Illinois, -1.6% down from last month and 20.8% up from a year ago. In the Chicago PMSA, the comparable figure is 200.1, -0.9% down from last month and 32.0% up from a year ago. (Reference: Illinois and Chicago PMSA Pending Home Sales Index figure) In July 2013, 3,751 houses were newly filed for foreclosures in the Chicago PMSA (34.6% down from a year ago) and 3,751 foreclosures were closed5 (57.5% up than a year ago). The foreclosure inventory decreased annually by 44.5% to 44,017. The ratio of foreclosure starts to foreclosure closes reflects the speed of adding or removing the foreclosures from the inventory. A ratio less than 1 indicates a decline in the foreclosure inventory and the smaller the value, the faster it is removed. The average ratio was 0.61 in the past 12 months, 0.77 in the last 24 months and 0.91 in the last 30 months. Given these ratios, the foreclosure inventory would return to the pre-bubble levels by September 2013, December 2013 and September 2014. (Reference: Chicago PMSA Foreclosure Activity and Inventory figures).

The Economy 





In July 2013, according to the Bureau of Labor Statistics (BLS) Employment Situation report, the unemployment rate edged down to 7.4% due to little change in both the labor force and the number of unemployed persons. The number of nonfarm payroll jobs experienced a gain by 162,000. The largest job creation was led by retail trade (+47,000), followed by leisure and hospitality (+38,000). Among housing market related sectors, real estate created 3,000 jobs while residential specialty trade contractors added 6,200 positions and residential building jobs kept unchanged. In July 2013, according to Illinois Department of Employment Security (IDES) news release, Illinois unemployment changes only slightly at 9.2% and 7,100 private sector jobs were created. By July 2013, Illinois has added 244,300 new private sector jobs since January 2010 when Illinois employment growth resumed after the national recession. The leading growth sectors is Professional and Business Services (+110,100), followed by Educational and Health Services (+57,100), and Trade, Transportation and Utilities (+46,000). Government has experienced the largest job loss (-33,200). In June 2013, the one-year-ahead forecast indicates that the employment will grow at a rate between 0.41% and 0.59%, corresponding to job creations between 23,900 and 34,100. The job gains forecast is led by Professional & business services (2.91%; 25,700), Education and health (1.80%; 15,900), and Financial Activities (1.79%; 6,700).

Longer-term Outlook 4 5

The base level (100) of pending home sales is the average pending home sales of year 2008. This is when an auction occurs, no matter what the auction results are.

Housing Forecast

August 2013

5



Two consumer confidence indexes both pointed positive appraisals of current conditions but opposite attitudes towards future conditions. The Conference Board Consumer Confidence Index decreased to 80.3 (1985=100), from the highest level since January 2008 of 82.1 last month. This decrease was mixed with improved attitudes towards the current conditions and more dominantly declined expectations for future conditions. The University of Michigan Consumer Sentiment Index, however, reached its historic high value of 85.1 in the past six years. This trend was generated by both a better appraisal of current personal financial conditions and positive future buying plans.



The Chicago Business Activity Index (CBAI) decreased to 96.0 in June from 102.5 in May. The fall is attributed to the decrease in manufacturing employment and activities in retail sector in the Chicago region.

“While both prices and sales continue to point to a sustained housing market recovery,” noted Geoffrey J.D. Hewings, Director of the Regional Economics Applications Laboratory of the University of Illinois, “the inventory of homes for sale remains at low levels. The number of foreclosed properties may have deterred many potential sellers from listing their homes. Recent analysis suggests that the level of foreclosed properties may return to pre-recession levels by the end of the year and thus providing some incentive for additional listings.”

Housing Forecast

August 2013

6

Forecast for August 2013 report PERCENTAGE CHANGE FOR THE TOTAL NUMBER OF SALES Annual

Monthly

Illinois

Chicago PMSA

Illinois

Chicago PMSA

May-13

26.6%

31.7%

19.7%

19.9%

Jun-13

17.2%

21.2%

1.4%

1.6%

Jul-13

28.5%

36.1%

2.9%

5.0%

23.9%

29.4%

44.8%

46.8%

3 Month Avg.

SUMMARY OF THE FORECAST INTERVALS FOR THE TOTAL NUMBER OF SALES Annual Illinois

Monthly

Chicago PMSA

Illinois

Chicago PMSA

Aug-13

20.5%

27.7%

24.5%

33.2%

3.8%

5.2%

2.1%

2.9%

Sep-13

33.3%

45.0%

40.6%

54.9%

-8.2%

-11.1%

-6.5%

-8.8%

Oct-13

24.8%

33.5%

28.9%

39.1%

1.7%

2.3%

0.8%

1.1%

25.7%

34.8%

30.8%

41.6%

0.6%

0.8%

1.1%

1.5%

3 Month Avg.

SUMMARY OF THE FORECAST FOR THE MEDIAN PRICE Illinois

Chicago PMSA

Illinois

Chicago PMSA

May-13

$155,000

$183,000

May-12

$145,000

$170,000

Jun-13

$170,000

$205,000

Jun-12

$155,000

$181,500

Jul-13

$169,000

$201,000

Jul-12

$147,940

$170,000

Aug-13

$168,523

$202,374

Aug-12

$147,000

$170,000

Sep-13

$159,835

$191,377

Sep-12

$139,000

$160,000

Oct-13

$154,759

$183,071

Oct-12

$134,000

$152,583

ANNUAL PERCENTAGE CHANGE OF THE MEDIAN PRICE Illinois

Chicago PMSA

Illinois

Chicago PMSA

May-13

6.9%

7.6%

May-12

3.6%

0.6%

Jun-13

9.7%

12.9%

Jun-12

3.3%

0.8%

Jul-13

14.2%

18.2%

Jul-12

-2.0%

-6.1%

Aug-13

14.6%

19.0%

Aug-12

-0.7%

-3.1%

Sep-13

15.0%

19.6%

Sep-12

1.7%

0.0%

Oct-13

15.5%

20.0%

Oct-12

3.2%

2.4%

Housing Forecast

August 2013

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Forecast for July 2013 report PERCENTAGE CHANGE FOR THE TOTAL NUMBER OF SALES Annual

Monthly

Illinois

Chicago PMSA

Illinois

Chicago PMSA

Apr-13

27.2%

33.2%

14.5%

15.4%

June-13

26.3%

31.4%

19.4%

19.7%

Jun-13

14.9%

18.7%

-0.3%

-0.2%

22.3%

27.1%

53.8%

54.0%

3 Month Avg.

SUMMARY OF THE FORECAST INTERVALS FOR THE TOTAL NUMBER OF SALES Annual Illinois

Monthly

Chicago PMSA

Illinois

Chicago PMSA

Jul-13

18.7%

25.3%

21.9%

29.7%

-0.4%

-0.5%

-0.8%

-1.1%

Aug-13

10.8%

14.6%

14.3%

19.3%

0.0%

0.0%

0.4%

0.6%

Sep-13

24.5%

33.2%

26.5%

35.8%

-6.7%

-9.1%

-8.1%

-11.0%

17.5%

23.7%

20.5%

27.7%

2.0%

2.6%

1.4%

1.9%

3 Month Avg.

SUMMARY OF THE FORECAST FOR THE MEDIAN PRICE Illinois

Chicago PMSA

Illinois

Chicago PMSA

Apr-13

$145,000

$172,625

Apr-12

$135,400

$160,000

June-13

$155,000

$183,000

June-12

$145,000

$170,000

Jun-13

$170,000

$206,000

Jun-12

$155,000

$181,450

Jul-13

$169,836

$201,195

Jul-12

$147,970

$170,000

Aug-13

$169,483

$204,477

Aug-12

$147,000

$170,000

Sep-13

$160,983

$192,357

Sep-12

$139,000

$160,000

ANNUAL PERCENTAGE CHANGE OF THE MEDIAN PRICE Illinois

Chicago PMSA

Illinois

Chicago PMSA

Apr-13

7.1%

7.9%

Apr-12

0.3%

-1.2%

June-13

6.9%

7.6%

June-12

3.6%

0.6%

Jun-13

9.7%

13.5%

Jun-12

3.3%

0.8%

Jul-13

14.8%

18.3%

Jul-12

-2.0%

-6.1%

Aug-13

15.3%

20.3%

Aug-12

-0.7%

-3.1%

Sep-13

15.8%

20.2%

Sep-12

1.8%

0.0%

Housing Forecast

August 2013

8

Illinois Median Home Sales Price

2011

$180,000

2012 2013

Median Sales Price

$170,000

$168,523

$160,000

Forecast

$159,835 $154,759

$151,000 $150,000 $145,000 $140,000 $130,000

$125,000 $125,000

$120,000 $110,000 Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Source: University of Illinois REAL, Illinois Association of REALTORS®

Illinois Total Home Sales 2011

18,000 16,000

16,012

15,352

14,000

Total Sales

2012

15,568

12,827

2013 13,489

12,000 10,000 8,000

10,454 8,502

8,383

6,484

6,000 5,607 4,000 Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Source: University of Illinois REAL, Illinois Association of REALTORS®

Housing Forecast

August 2013

9

Chicago PMSA Median Home Sales Price $210,000

2011

$202,374

2012

$200,000

2013

Median Sales Price

$190,000

$191,377

Forecast

$180,000 $172,900 $170,000 $160,000 $150,000 $140,000

$140,000

$145,000

$140,000

$130,000 $120,000 Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Chicago PMSA: Cook, DeKalb, DuPage, Grundy, Kane, Kendall, Lake, McHenry and Will counties Source: University of Illinois REAL, Illinois Association of REALTORS®

Chicago PMSA Total Home Sales 2011

14,000

2012 12,000

2013

11,897

11,153 11,335

Total Sales

10,000

9,467

9,303 8,060

8,000 6,349 6,000

6,066

4,564 4,000 2,000 Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Chicago PMSA: Cook, DeKalb, DuPage, Grundy, Kane, Kendall, Lake, McHenry and Will counties Source: University of Illinois REAL, Illinois Association of REALTORS®

20 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13

Housing Forecast August 2013

IL Pending Index

10

Pending Home Sales Index

260

220

180

140

100

60

Chicago Pending Index

Source: University of Illinois REAL, Illinois Association of REALTORS®

Housing Forecast

August 2013

11

Illnois Annual Months' Supply by Price Range 5.2

Overall

8.8 9.5

700K~UP

13.9 6.1

Price by Ranges

500K~700K

10.3 5.5

300K~500K

8.7 5.3

200K~300K

8.5 4.9

100K~200K

2013 July

8.7

2013 June

4.8

0 ~100K -1.0

2012 July

8.3 1.0

3.0

5.0

7.0

9.0

11.0

13.0

15.0

Source: University of Illinois REAL, Illinois Association of REALTORS®

Chicago Annual Months' Supply by Price Range 3.5 Overall

7.3 7.4

700K~UP

11.1 4.5

Price by Ranges

500K~700K

7.9 4.1

300K~500K

6.9 3.8

200K~300K

7.0 3.2

2013 July

100K~200K

7.4

2013 June

2.7

0 ~100K

2012 July

7.1 0.0

2.0

4.0

6.0

8.0

10.0

12.0

Chicago PMSA: Cook, DeKalb, DuPage, Grundy, Kane, Kendall, Lake, McHenry and Will counties Source: University of Illinois REAL, Illinois Association of REALTORS®

Housing Forecast

August 2013

12

Illinois Price Stratification 40% 2013 July

35%

Share of Total Sales

30%

31.5% 30.5% 31.6%

2013 June

26.9%

2012 July

25% 18.4%

20%

16.6%

15.4%

15%

12.6%

10%

4.9% 3.9%

5%

4.0%

3.8%

0% 0 ~100K

100K~200K

200K~300K

300K~500K

500K~700K

700K~UP

Source: University of Illinois REAL, Illinois Association of REALTORS®

Chicago PMSA Price Stratification 40% 2013 July

35%

2013 June

28.1% 28.8%

30%

Share of Total Sales

26.4% 25%

2012 July

20.6%

20.7%

18.8% 18.5%

20%

15.7% 15% 10%

6.4% 5.4%

5.3%

5.2%

5% 0% 0 ~100K

100K~200K

200K~300K

300K~500K

500K~700K

700K~UP

Chicago PMSA: Cook, DeKalb, DuPage, Grundy, Kane, Kendall, Lake, McHenry and Will counties Source: University of Illinois REAL, Illinois Association of REALTORS®

Housing Forecast

August 2013

13

Illinois Average Time on the Market (Day) 140

2013 July

2013 June

2012 July

120

Days

100

84

96

95 86

82

84

73

80

72 62 51

60

68

53

40 20 0 0 ~100K

100K~200K

200K~300K

300K~500K

500K~700K

700K~UP

Source: University of Illinois REAL, Illinois Association of REALTORS®

Chicago PMSA Average Time on the Market (Day) 140 2013 July

2013 June

2012 July

120

Days

100 80

73

91

86 66

71

56 47

60

83

78

75

66

50

40 20 0 0 ~100K

100K~200K

200K~300K

300K~500K

500K~700K

700K~UP

Chicago PMSA: Cook, DeKalb, DuPage, Grundy, Kane, Kendall, Lake, McHenry and Will counties Source: University of Illinois REAL, Illinois Association of REALTORS®

Jul-13

Apr-13

Jan-13

Oct-12

Jul-12

Apr-12

Jan-12

Oct-11

Jul-11

Apr-11

Jan-11

Oct-10

Jul-10

Apr-10

Jan-10

Oct-09

Jul-09

Apr-09

Jan-09

Oct-08

Jul-08

Apr-08

Jan-08

Oct-07

Jul-07

Apr-07

90000

Jan-07

Oct-06

Jul-06

Apr-06

Jan-06

Axis Title

Jul-13

Apr-13

Jan-13

Oct-12

Jul-12

Apr-12

Jan-12

Oct-11

Jul-11

Apr-11

Jan-11

Oct-10

Jul-10

Apr-10

Jan-10

Oct-09

Jul-09

Apr-09

Jan-09

Oct-08

Jul-08

Apr-08

Jan-08

Oct-07

Jul-07

Apr-07

Jan-07

Oct-06

Jul-06

Apr-06

Jan-06

Housing Forecast August 2013 14

10000

Chicago PMSA New Foreclosure Filings and Foreclosure Sales

9000 New foreclosure filings

Foreclosure Sales

8000

7000

6000

5000

4000

3000

2000

1000

0

Chicago PMSA Foreclosure Inventory and Pre-bubble Level

100000

Foreclosure Inventory

Average Inventory 1997-2005

80000

70000

60000

50000

40000

30000

20000

10000

0

Housing Forecast

August 2013

15

Chicago PMSA Foreclosure Inventory Recover Schedule 100000

September, 2013 90000

December2013

80000 70000

September, 2014

60000 50000

40000 30000 20000 10000

Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18 May-18 Sep-18

0

Inventory Projection with the last 30 months' in/out ratio

Inventory Projection with last 24 months in/out ratio

Inventory Projection with last 12 months' in/out ratio

Foreclosure Inventory

Average Inventory 1997-2005