Housing Price Forecasts Illinois and Chicago PMSA, July 2014 ... - MrEd

Jul 22, 2014 - after removing outliers in the data and controlling for housing characteristics. In Illinois ... According to Zillow Inc., 28.1% of homes remained underwater in the Chicago-area in the first ... 2 These include both recorded foreclosure sales in the data and projected foreclosure sales that are missing in the data.
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Housing Price Forecasts Illinois and Chicago PMSA, July 2014

Presented To

Illinois Association of Realtors From R

E

A

L

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

July 22, 2014

Contact:

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

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Housing Price Forecast: Illinois and Chicago PMSA, July 2014 The Housing Market In June, sales in both Illinois and the Chicago PMSA finally rebounded to the similar level as last year after four consecutive months of annual decreases while median housing prices still retained moderate gains. In June, 15,661 houses were sold in Illinois, 0.1% more than a year ago. In the Chicago PMSA, 11,241 houses were sold, -1.2% less than last June. The median price was $179,900 in Illinois, up 5.8% from June last year; the comparable figure for the Chicago PMSA was $220,000, up 7.3% from this time last year. The sales forecast for July, August and September 2014 suggests continuing similar sales levels as a year ago but with a slight downtrend on a monthly basis. Annually, the three-month average forecasts point to a change of between -0.3% and -0.2% for Illinois; for the Chicago PMSA, the change will range from 0.3% to 0.4%. On a monthly basis, the three-month average sales are forecast to decrease by 2.9%-4.0% for Illinois and 2.8%-3.7% for the Chicago PMSA. The median price forecast indicates moderate annual increases in median prices for July, August and September compared to a year ago. In Illinois, the median price is forecast to rise by 4.6% in July, 5.3% in August and 6.9% in September. For the Chicago PMSA, the comparable figures are 8.4% in July, 8.0% in August and 11.0% in September. As a complement to the median housing price index (HPI), the REAL HPI1 forecast indicates higher annual growth rates after removing outliers in the data and controlling for housing characteristics. In Illinois, the REAL HPI (Jan 2008=1) is forecast to rise by 9.5% in July, 9.9% in August and 7.5% in September. The comparative figures for the Chicago PMSA are 10.3% in July, 10.2% in August and 9.9% in September. According to Zillow Inc., 28.1% of homes remained underwater in the Chicago-area in the first quarter. As housing prices go up, the number of homes underwater will decrease and thus the number of foreclosures could be expected to decrease. In June 2014, 2,381 houses were newly filed for foreclosure in the Chicago PMSA (up 4.6% and 7.7% respectively from a year and a month ago) and 4,210 foreclosures were completed2 (down 29.8% and 15.4% respectively from a year ago and a month ago). As of June 2014, there are 34,019 homes at some stage of foreclosure— the foreclosure inventory. Based on the past 12-month average inventory change rate of -14.3%, the foreclosure inventory would return to the pre-bubble levels3 by Dec 2014. Rising home prices have generated more home sales and more home buying has led to higher homebuilder confidence. According to the University of Michigan Consumer Sentiment Index, particular good news regarding the housing market could be found from its consumer survey where more than half of the homeowners (the largest since May 2006) found home selling was favorable due to the consecutive months of rising housing prices. While more selling implies more buying, homebuilders became more optimistic as well. The Builder Confidence reading 1

REAL HPI was developed by Esteban Lopez and Minshu Du. Contact us for further details. These include both recorded foreclosure sales in the data and projected foreclosure sales that are missing in the data. 3 Average foreclosure inventory from 1997-2005 2

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released by the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) reached 53, for the first time jumping back above 50 for the first time since January. A reading above 50 indicates that builders rate the sales condition as good. While the June national unemployment rate decreased to 6.1% -- a new low for the past five and half years, the media has directed more attention to what lies behind the gains of 288,000 nonfarm payroll jobs. According to the Bureau of Labor Statistics (BLS), labor market churning has seen a decline of 523,000 full-time jobs and the largest monthly gain (799,000) of part-time jobs since Jan 1994.4 Different opinions on these facts were circulated, and some are more positive than others. While some suspect the creation of part-time jobs cannot help the housing affordability, PNC Financial Services has argued that the sudden jump in part time jobs may be voluntary instead of being for economic reasons and the job gains are being led by high-wage sectors. Thus, it was not necessarily an unhealthy picture of the job market. Moreover, the ratio of part-time to full-time jobs is decreasing which may mute concerns about an erosion of home buying power.

The Housing Market – Current Condition  In June, sales in Illinois and the Chicago PMSA reached similar levels as last year after four consecutive months of annual decreases in sales, and median housing prices still retained moderate gains. 15,661 houses were sold in Illinois, 0.1% more than a year ago. In the Chicago PMSA, 11,241 houses were sold, -1.2% less than last June. The median price was $179,900 in Illinois, up 5.8% from June last year; the comparable figure for the Chicago PMSA was $220,000, up 7.3% from this time last year. (Reference: Illinois and Chicago PMSA Total Home Sales and Median Home Sales Price figures; Forecast for July 2014 report table)  In June, at the latest average annual pending sales rate, Illinois had enough housing inventory for 5.6 months5 (down from 6.1 months a year ago). In the Chicago PMSA, the comparable figure was 4.1 months (down from 4.5 months a year ago). The overall trend of the months’ inventory was dominated by the decreasing trend for homes priced at the lower end (below $300K). (Reference: Illinois and Chicago PMSA Annual Months’ Supply by Price Range figures)  In June, homes priced below $100K held a smaller market share compared to a year ago, while homes at all other higher price ranges received increases in market shares. For Illinois, homes priced below $100K held a market share that decreased to 23.1% from 26.1% a year ago. The comparable figure for the Chicago PMSA was 16.2% decreasing from 20.0% recorded in June 2013. (Reference: Illinois and Chicago PMSA Price Stratification figures)  In terms of number of bedrooms and bathrooms, homes sold in June are generally similar to those sold a year ago with the exception that homes with three bedrooms accounted for a larger increase in share. For Illinois, the share of 3 bedrooms increased 4

Based on Market Watch: http://blogs.marketwatch.com/capitolreport/2014/07/03/part-time-work-jumps-in-juneby-nearly-800000/ 5 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.

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to 43.0% from 41.9% a year ago. The comparable figure for the Chicago PMSA was 39.5% increasing from 38.1%. (Reference: Illinois and Chicago PMSA House Characteristics Stratification figures) The Housing Market – Forecast and Future Condition  The median price forecast indicates moderate annual increases in median prices for July, August and September compared to a year ago. In Illinois, the median price is forecast to rise by 4.6% in July, 5.3% in August and 6.9% in September. For the Chicago PMSA, the comparable figures are 8.4% in July, 8.0% in August and 11.0% in September. (Reference: Forecast for July 2014 report table)  As a complement to the median housing price index (HPI), the REAL HPI6 forecast indicates annual growth rates that are higher for Illinois and for Chicago PMSA. In Illinois, the REAL HPI (Jan 2008=1) is forecast to rise by 9.5% in July, 9.9% in August and 7.5% in September. The comparative figures for the Chicago PMSA are 10.3% in July, 10.2% in August and 9.9% in September. REAL HPI takes housing characteristics into account and constructs comparable “baskets” of homes for each month. (Reference: Housing Price Index)  The sales forecast for July, August and September 2014 suggests similar sales level as a year ago but slight downtrend on a monthly basis. Annually, the three-month average forecasts point to a change of between -0.3% and -0.2% for Illinois; for the Chicago PMSA, the change will range from 0.3% to 0.4%. On a monthly basis, the three-month average sales are forecast to decrease by 2.9%-4.0% for Illinois and 2.8%-3.7% for the Chicago PMSA. (Reference: Forecast for July 2014 report table)  The pending home sales index7 is a leading indicator based on contract signings. This June, homes put under contract decreased on a monthly basis for both Illinois and the Chicago PMSA but took different trends on a yearly basis for these two areas. The pending home sales index is 164.5 (2008=100) in Illinois, down 6.0% from last month and down 1.4% from a year ago. In the Chicago PMSA, the comparable figure is 196.9, down 3.3% from last month and up 2.1% from a year ago. (Reference: Illinois and Chicago PMSA Pending Home Sales Index figure)  In June 2014, 2,381 houses were newly filed for foreclosure in the Chicago PMSA (up 4.6% and 7.7% respectively from a year and a month ago) and 4,210 foreclosures were completed8 (down 29.8% and 15.4% respectively from a year ago and a month ago). As of June 2014, there are 34,019 homes are at some stage of foreclosures— the foreclosure inventory. The average inventory change rates were -24.2% in the past 6 months, 14.3% in the last 12 months and -8.2% in the last 24 months. Given these rates of change, the foreclosure inventory would return to the pre-bubble levels9 by Oct 2014, Dec 2014 and May 2015 respectively. (Reference: Chicago PMSA Foreclosure Activity and Inventory figures).

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REAL HPI is developed by Esteban Lopez and Minshu Du. Contact us for technique details. The base level (100) of pending home sales is the average pending home sales of year 2008. 8 These include both recorded foreclosure sales in the data and projected foreclosure sales that are missing in the data. 9 Average foreclosure inventory from 1997-2005 7

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The Economy 





In June 2014, according to the Bureau of Labor Statistics (BLS) Employment Situation report, the national unemployment rate decreased to 6.1% which is a new low for the past five and half years. The number of nonfarm payroll jobs experienced a gain of 288,000. Among all industries, professional and business services added the most jobs (+67,000), followed by retail trade (40,000). Moreover, these job gains are composed of 523,000 full-time job losses and 799,000 part-time job gains. In May 2014, according to Illinois Department of Employment Security (IDES) news release, the Illinois unemployment rate fell to 7.5%, the lowest since November 2008. In a separate survey, however, 2,600 non-farm payroll jobs were lost. Through May 2014, Illinois has added 242,700 new private sector jobs since January 2010 when Illinois employment growth resumed after the national recession. In May 2014, the one-year-ahead forecast for Illinois indicates that the non-farm employment will decrease at a negative rate between 0.27% and 0.48%, corresponding to job loss between 15,600 and 27,900. Five sectors are forecast to show job gains: education and health (1.96%; 17,200), leisure and hospitality (2.30%; 12,500), construction (1.13%; 2,200), trade, transportation and utilities (0.14%; 1,600) and Government (0.02%; 200). Illinois never recovered from the 2000-2001 downturn and is still several hundred thousand jobs below its prior peak of November 2000.

Longer-term Outlook 

In June, two consumer confidence indices both highlighted consumers’ positive sentiments. The Conference Board Consumer Confidence Index increased to its highest since January 2008 – 85.2 (1985=100). Consumers’ appraisal of current and near future business conditions and job market both became more positive; the University of Michigan Consumer Sentiment Index increased to 82.5 from 81.9 last month. Particularly good news regarding the housing market from their consumer survey was that more than half of the homeowners (the largest since May 2006) found home selling was favorable due to the consecutive months of rising housing prices.



In July, Builder Confidence reading released by the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) was 53, for the first time jumping back to the 50 levels since January. A reading above 50 indicates that builders rate the sales condition as good. This index measures builder confidence towards the sales conditions for the single-family market from three perspectives: current sales, sales expected in next six month and the traffic generated by perspective homebuyers.



The Chicago Business Activity Index (CBAI) edged up to 102.7 in May from 102.3 in April. The rise is attributed to an increase in job growth in nonmanufacturing and construction in the Chicago area.

“The volumes of sales over the next three months (July, August and September) is forecast to match those recorded in 2013,” noted Geoffrey J.D. Hewings, Director of the Regional Economics Applications Laboratory of the University of Illinois. “In addition, median

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prices are continuing to climb while the REAL Housing Price Index suggests a slightly more optimistic growth rate when housing characteristics are taken into account. Further good news may be found in the Chicago foreclosure inventory; the average inventory change rates were -24.2% in the past 6 months, -14.3% in the last 12 months and -8.2% in the last 24 months. Given these rates of change, the foreclosure inventory would return to the prebubble levels by Oct 2014, Dec 2014 and May 2015 respectively.”

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Forecast for July 2014 report PERCENTAGE CHANGE FOR THE TOTAL NUMBER OF SALES Annual

Monthly

Illinois

Chicago PMSA

Illinois

Chicago PMSA

Apr-14

-6.6%

-8.6%

19.2%

16.6%

May-14

-8.2%

-11.0%

17.7%

16.9%

Jun-14

0.1%

-1.2%

10.9%

13.0%

-4.7%

-6.8%

15.4%

15.3%

3 Month Avg.

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

Monthly

Chicago PMSA

Illinois

Chicago PMSA

Jul-14

-1.4%

-1.9%

-0.6%

-0.9%

2.9%

4.0%

5.7%

7.8%

Aug-14

-2.0%

-2.7%

-1.2%

-1.6%

-1.0%

-1.4%

-1.4%

-1.9%

Sep-14

3.4%

4.6%

3.2%

4.3%

-10.6%

-14.4%

-12.2%

-16.6%

-0.2%

-0.3%

0.3%

0.4%

-2.9%

-4.0%

-2.8%

-3.7%

3 Month Avg.

SUMMARY OF THE FORECAST FOR THE MEDIAN PRICE Illinois

Chicago PMSA

Illinois

Chicago PMSA

Apr-14

$155,000

$190,000

Apr-13

$145,000

$172,950

May-14

$167,900

$207,000

May-13

$155,000

$183,000

Jun-14

$179,900

$220,000

Jun-13

$170,000

$205,000

Jul-14

$174,618

$216,765

Jul-13

$167,000

$200,000

Aug-14

$173,721

$212,823

Aug-13

$165,000

$197,000

Sep-14

$165,634

$205,340

Sep-13

$155,000

$185,000

ANNUAL PERCENTAGE CHANGE OF THE MEDIAN PRICE Illinois

Chicago PMSA

Illinois

Chicago PMSA

Apr-14

6.9%

9.9%

Apr-13

7.2%

8.1%

May-14

8.3%

13.1%

May-13

6.9%

7.6%

Jun-14

5.8%

7.3%

Jun-13

9.7%

13.0%

Jul-14

4.6%

8.4%

Jul-13

13.4%

17.6%

Aug-14

5.3%

8.0%

Aug-13

12.2%

15.9%

Sep-14

6.9%

11.0%

Sep-13

11.5%

15.6%

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Forecast for June 2014 report PERCENTAGE CHANGE FOR THE TOTAL NUMBER OF SALES Annual

Monthly

Illinois

Chicago PMSA

Illinois

Chicago PMSA

Mar-14

-10.3%

-9.6%

25.9%

28.6%

Apr-14

-6.7%

-8.8%

19.0%

16.4%

May-14

-9.4%

-12.2%

16.4%

15.5%

3 Month Avg.

-8.8%

-10.4%

19.8%

19.3%

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

Monthly

Chicago PMSA

Illinois

Chicago PMSA

Jun-14

-3.5%

-4.7%

-6.5%

-8.8%

6.4%

8.7%

6.0%

8.1%

Jul-14

-2.4%

-3.3%

-4.1%

-5.6%

5.7%

7.7%

8.1%

11.0%

Aug-14

0.6%

0.8%

0.3%

0.4%

2.7%

3.6%

3.7%

5.0%

-1.7%

-2.4%

-3.4%

-4.6%

4.8%

6.5%

5.9%

7.9%

3 Month Avg.

SUMMARY OF THE FORECAST FOR THE MEDIAN PRICE Illinois

Chicago PMSA

Illinois

Chicago PMSA

Mar-14

$148,000

$175,000

Mar-13

$134,500

$155,000

Apr-14

$155,000

$190,000

Apr-13

$145,000

$172,950

May-14

$167,681

$207,000

May-13

$155,000

$183,000

Jun-14

$179,873

$222,057

Jun-13

$170,000

$205,000

Jul-14

$174,206

$215,905

Jul-13

$167,000

$200,000

Aug-14

$173,189

$213,430

Aug-13

$165,000

$197,000

ANNUAL PERCENTAGE CHANGE OF THE MEDIAN PRICE Illinois

Chicago PMSA

Illinois

Chicago PMSA

Mar-14

10.0%

12.9%

Mar-13

3.5%

2.1%

Apr-14

6.9%

9.9%

Apr-13

7.2%

8.1%

May-14

8.2%

13.1%

May-13

6.9%

7.6%

Jun-14

5.8%

8.3%

Jun-13

9.7%

13.0%

Jul-14

4.3%

8.0%

Jul-13

13.4%

17.6%

Aug-14

5.0%

8.3%

Aug-13

12.2%

15.9%

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