Sep 22, 2014 - as the internet is making sales easier, homeowners are selling by themselves to save the commissions. In
Housing Price Forecasts Illinois and Chicago PMSA, September 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
September 22, 2014
Contact:
Geoffrey Hewings 217-333-4740 (
[email protected]) Xian Fang 217-244-7226 (
[email protected])
Housing Forecast
September 2014
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Housing Price Forecast: Illinois and Chicago PMSA, September 2014 The Housing Market In August, sales in Illinois and the Chicago PMSA experienced the largest year-over-year decreases in sales in 2014, while median housing prices still retained moderate gains. 14,679 houses were sold in Illinois, 10.4% less than a year ago. In the Chicago PMSA, 10,370 houses were sold, 13.3% less than last August. The median price was $175,000 in Illinois, up 6.1% from August last year; the comparable figure for the Chicago PMSA was $215,000, up 9.1% from this time last year. When total sales are classified into foreclosed property sales and regular property sales, the annual decreases in total sales starting from Jan 2014 can be more thoroughly explained. In the Chicago PMSA, the monthly regular sales changed by -8.7% to 5.5% from a year ago, while foreclosed sales decreased by 14.3% to 32.1%. The significant decreases in foreclosed sales largely accounted for the decreases in the total sales, given the much milder changes in the regular sales. As for the median sales prices, both groups contributed to the robust gains in overall median prices. Foreclosed properties and regular properties respectively experienced year-over-year gains by 1.8%-12.6% and 6.1%-14.2% since the beginning of 2014. The sales forecast for September, October and November 2014 suggests a downtrend both on an annual and monthly basis. Annually, the three-month average forecasts point to a change of between -9.4% and -7.0% for Illinois; for the Chicago PMSA, the change will range from -5.4% to -4.0%. On a monthly basis, the three-month average sales are forecast to decrease by 10.2%13.8% for Illinois and 7.5%-10.1% for the Chicago PMSA. While the regular sales are more predictable due to its clear seasonal patterns, foreclosed sales are adding noise into the forecasts. Real estate owned (REO) properties are the main source for foreclosed sales, but it is hard to gauge what lending institution’s plans are on releasing the REOs. The median price forecast indicates continuous, robust annual increases in median prices for September, October and November compared to a year ago. In Illinois, the median price is forecast to rise by 7.2% in September, 7.4% in October and 9.9% in November. For the Chicago PMSA, the comparable figures are 11.3% in September, 12.2% in October and 15.4% in November. As a complement to the median housing price index (HPI), the REAL HPI 1 forecast a more robust growth trend for Illinois and a smoother growth trend for the Chicago PMSA. In Illinois, the REAL HPI (Jan 2008=1) is forecast to rise by 6.7% in September, 9.9% in October and 11.0% in November. The comparable figures for the Chicago PMSA are 10.3% in September, 10.6% in October and 13.1% in November. REAL HPI takes housing characteristics into account and constructs comparable “baskets” of homes for each month. While both consumer confidence indices increased in August, there was mixed response concerning consumer satisfaction about their current conditions and their concerns on the growth of future earnings. In addition to consumers’ earning concern, credits overlays, higher
1
REAL HPI was developed by Esteban Lopez and Minshu Du. Contact us for further details.
Housing Forecast
September 2014
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down payments and higher cost of FHA loan 2 all affect home buyers affordability. Correspondingly, housing starts have been flat lately and still way below pre-bubble levels. On the other hand, the August Builder Confidence reading released by the National Association of Home Builders (NAHB) /Wells Fargo Housing Market Index (HMI) reached its highest since Jan 2014. This generated a large gap between the high builders’ sentiments and the low housing starts. According to NAHB, homebuilders are focusing on building larger and more expensive homes targeting the qualified buyers to whom they believe these homes can be marketed, instead of the first-time homebuyers. While the national job growth has been less robust in the last month, Illinois experienced much more promising job gains in July. According to Illinois Department of Employment Security (IDES) news release, the Illinois unemployment rate fell to 6.8% - the lowest since August 2008 and 11,200 non-farm payroll jobs were created – many more than the average monthly job gains of 4,400 in the past four years. However, less positive news for realtors was the report that more homeowners are choosing to sell without agents. According to an article on Crain’s,3 as the internet is making sales easier, homeowners are selling by themselves to save the commissions. In the second quarter, for instance, 42% more homes in the Chicago area were listed on forsalebyowner.com compared to last year; while the comparative increase in listings on the traditional multiple-listing service is just 12%. Meanwhile, the homes sold nationwide through the former channel increased by 16% for in the second quarter and the total sales (with or without agents) nationwide decreased by 1%. The Housing Market – Current Condition In August, sales in Illinois and the Chicago PMSA experienced the largest year-overyear decreases in sales in 2014, and median housing prices still retained moderate gains. 14,679 houses were sold in Illinois, 10.4% less than a year ago. In the Chicago PMSA, 10,370 houses were sold, 13.3% less than last August. The median price was $175,000 in Illinois, up 6.1% from August last year; the comparable figure for the Chicago PMSA was $215,000, up 9.1% from this time last year. (Reference: Illinois and Chicago PMSA Total Home Sales and Median Home Sales Price figures; Forecast for September 2014 report table) In August Chicago PMSA, the percentage of foreclosed sales (e.g. REOs) among the total sales decreased to 15.8%, the lowest since Oct 2008. 8,697 regular sales were made, 8.7% less than a year ago. 1,604 foreclosed properties were sold, 32.1% less than last August. The median price was $238,000 for regular property sales, up 5.8% from August last year; the comparable figure for the foreclosed properties was $125,000, up 8.7% from this time last year. (Reference: Sales and Median Sales Price for Chicago PMSA: Foreclosed vs. Regular)
2
http://www.scotsmanguide.com/News/2014/08/Tight-credit-creates-gap-between-builder-confidence--housingstarts/ 3 http://www.chicagobusiness.com/realestate/20140828/CRED0701/140829801/for-realtors-an-unwelcometrend?r=7222I3698701E3Q
Housing Forecast
September 2014
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In August, at the latest average annual pending sales rate, Illinois had enough housing inventory for 5.9 months4 (down from 6.0 months a year ago). In the Chicago PMSA, the comparable figure was 4.4 months (up from 4.3 months a year ago). Months of supply are increasing for homes above $200K and decreasing for homes below $200K in both Illinois and the Chicago PMSA. However in Illinois, the overall trend of the months’ inventory was dominated by the decreasing trend for homes priced at the lower end; it is contrasted with the Chicago PMSA, dominated by the increases for more expensive homes. (Reference: Illinois and Chicago PMSA Annual Months’ Supply by Price Range figures) In August, homes priced below $100K held a smaller market share compared to a year ago, while homes at other higher price ranges either received increases in market shares or kept little changed. For Illinois, homes priced below $100K held a market share that decreased to 23.7% from 27.2% a year ago. The comparable figure for the Chicago PMSA was 15.7% decreasing from 20.4% recorded in August 2013. (Reference: Illinois and Chicago PMSA Price Stratification figures)
The Housing Market – Forecast and Future Condition The median price forecast indicates moderate annual increases in median prices for September, October and November compared to a year ago. In Illinois, the median price is forecast to rise by 7.2% in September, 7.4% in October and 9.9% in November. For the Chicago PMSA, the comparable figures are 11.3% in September, 12.2% in October and 15.4% in November. (Reference: Forecast for September 2014 report table) As a complement to the median housing price index (HPI), the REAL HPI5 forecast a more robust growth trend for Illinois and a smoother growth trend for the Chicago PMSA. In Illinois, the REAL HPI (Jan 2008=1) is forecast to rise by 6.7% in September, 9.9% in October and 11.0% in November. The comparable figures for the Chicago PMSA are 10.3% in September, 10.6% in October and 13.1% in November. REAL HPI takes housing characteristics into account and constructs comparable “baskets” of homes for each month. (Reference: Housing Price Index) The sales forecast for September, October and November 2014 suggests a downtrend both on an annual and monthly basis. Annually, the three-month average forecasts point to a change of between -9.4% and -7.0% for Illinois; for the Chicago PMSA, the change will range from -5.4% to -4.0%. On a monthly basis, the three-month average sales are forecast to decrease by 10.2%-13.8% for Illinois and 7.5%-10.1% for the Chicago PMSA. (Reference: Forecast for September 2014 report table) The pending home sales index6 is a leading indicator based on contract signings. This August, homes put under contract decreased on both the monthly and annual basis. The pending home sales index is 145.1 (2008=100) in Illinois, down 7.5% from last month and down 7.0% from a year ago. In the Chicago PMSA, the comparable figure is 169.7, down 4.5% from last month and down 3.5% from a year ago. (Reference: Illinois and Chicago PMSA Pending Home Sales Index figure) 4
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. 5 REAL HPI was developed by Esteban Lopez and Minshu Du. Contact us for further details. 6 The base level (100) of pending home sales is the average pending home sales of year 2008.
Housing Forecast
September 2014
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In August 2014, 2,092 houses were newly filed for foreclosure in the Chicago PMSA (down 18.5% and 10.2% respectively from a year and a month ago) and 2,888 foreclosures were completed7 (down 59.1% and up 1.9% respectively from a year ago and a month ago). As of August 2014, there are 32,720 homes are at some stage of foreclosures— the foreclosure inventory. The average inventory change rates8 were 3.7% in the past 3 months, -5.8% in the last 6 months and -6.0% in the last 9 months. Given these rates of change, the foreclosure inventory would return to the pre-bubble levels9 by Dec 2016, Jan 2016 and Dec 2015 respectively. (Reference: Chicago PMSA Foreclosure Activity and Inventory figures).
The Economy
In August 2014, according to the Bureau of Labor Statistics (BLS) Employment Situation report, the national unemployment rate edged down slightly to 6.1%, while the number of nonfarm payroll jobs experienced limited gains of 142,000 (an average of 212,000 job gains in the past 12 months). Among all industries, professional and business services added the most jobs (+47,000), followed by health care (+34,000). Moreover, the construction sector created 20,000 jobs - a relatively stable rate. In July 2014, according to Illinois Department of Employment Security (IDES) news release, the Illinois unemployment rate fell to 6.8% - the lowest since August 2008 and 11,200 non-farm payroll jobs were created. Through July 2014, Illinois has added 263,100 new private sector jobs since February 2010 when Illinois employment growth resumed after the national recession. In July 2014, the one-year-ahead forecast for Illinois indicates that the non-farm employment will edge up at a rate between 0.66 % and 1.13%, corresponding to job gains between 38,600 and 65,900. The total gains are forecast to unevenly distributed across seven sectors: education and health (1.74%; 15,400), leisure and hospitality (1.29%; 7,000), construction (3.96%; 7,900), financial activities (1.00%; 3,700), Government (0.24%; 2,000), trade, transportation and utilities (0.15%; 1,800) and other services (0.04%; 100).
Longer-term Outlook
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In August, two consumer confidence indices both pointed consumers’ overall positive sentiments. While consumer’ satisfaction about the current condition continue, concerns on the growth of future earnings still remain. The Conference Board Consumer Confidence Index increased to its highest since November 2007 – 92.4 (1985=100); the University of Michigan Consumer Sentiment Index increased to 82.5 from 81.8 last month. Moreover, the later survey revealed different sentiments by income groups – in terms of personal finances, 59% of the top third income group reported being better while the comparative figure for the bottom two thirds is only 36%.
Including estimated foreclosure completions that are missing in the data. The range of months used for calculating the average change rates are modified from the 6/12/24 months’ scenarios to 3/6/9 months’ scenarios since Aug 2014. 9 Average foreclosure inventory from 1997-2005 8
Housing Forecast
September 2014
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The Chicago Business Activity Index (CBAI) decreased to 102.2 in July from 106.9 in June. The fall is attributed to a decrease in job growth in construction in the Chicago area.
“Modest increases in median prices are anticipated to continue. Analysis reveals that the decrease (on an annual basis) in the sales can be attributed to the decline in foreclosure sales; regular sales are almost at last year's level,” noted Geoffrey J.D. Hewings, Director of the Regional Economics Applications Laboratory of the University of Illinois. “A re-estimate of the foreclosure inventory suggests that it will be another 12-15 months before this inventory returns to pre-recession levels.”
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Forecast for September 2014 report PERCENTAGE CHANGE FOR THE TOTAL NUMBER OF SALES Annual
Monthly
Illinois
Chicago PMSA
Illinois
Chicago PMSA
Jun-14
1.9%
0.7%
12.4%
14.8%
Jul-14
-5.5%
-6.9%
-2.3%
-1.7%
Aug-14
-10.4%
-13.3%
-5.7%
-7.9%
-4.8%
-6.6%
1.1%
1.2%
3 Month Avg.
SUMMARY OF THE FORECAST INTERVALS FOR THE TOTAL NUMBER OF SALES Annual Illinois
Monthly
Chicago PMSA
Illinois
Chicago PMSA
Sep-14
-4.2%
-5.7%
-6.4%
-8.7%
-10.9%
-14.7%
-11.2%
-15.2%
Oct-14
-9.5%
-12.9%
-5.9%
-8.0%
-8.6%
-11.7%
-1.9%
-2.6%
Nov-14
-7.3%
-9.9%
1.4%
1.8%
-11.1%
-15.0%
-8.7%
-11.8%
-7.0%
-9.4%
-4.0%
-5.4%
-10.2%
-13.8%
-7.5%
-10.1%
3 Month Avg.
SUMMARY OF THE FORECAST FOR THE MEDIAN PRICE Illinois
Chicago PMSA
Illinois
Chicago PMSA
Jun-14
$179,900
$220,000
Jun-13
$170,000
$205,000
Jul-14
$179,000
$218,000
Jul-13
$167,000
$200,000
Aug-14
$175,000
$215,000
Aug-13
$165,000
$197,000
Sep-14
$166,086
$205,985
Sep-13
$155,000
$185,000
Oct-14
$161,086
$196,308
Oct-13
$150,000
$175,000
Nov-14
$159,342
$195,604
Nov-13
$145,000
$169,500
ANNUAL PERCENTAGE CHANGE OF THE MEDIAN PRICE Illinois
Chicago PMSA
Illinois
Chicago PMSA
Jun-14
5.8%
7.3%
Jun-13
9.7%
13.0%
Jul-14
7.2%
9.0%
Jul-13
13.5%
17.6%
Aug-14
6.1%
9.1%
Aug-13
12.2%
15.9%
Sep-14
7.2%
11.3%
Sep-13
11.5%
15.6%
Oct-14
7.4%
12.2%
Oct-13
11.9%
14.7%
Nov-14
9.9%
15.4%
Nov-13
7.4%
9.4%
Housing Forecast
September 2014
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Forecast for August 2014 report PERCENTAGE CHANGE FOR THE TOTAL NUMBER OF SALES Annual
Monthly
Illinois
Chicago PMSA
Illinois
Chicago PMSA
May-14
-8.0%
-10.8%
17.8%
17.1%
Jun-14
1.8%
0.5%
12.4%
14.7%
Jul-14
-6.5%
-8.0%
-3.3%
-2.7%
-4.3%
-6.1%
8.0%
8.7%
3 Month Avg.
SUMMARY OF THE FORECAST INTERVALS FOR THE TOTAL NUMBER OF SALES Annual Illinois
Monthly
Chicago PMSA
Illinois
Chicago PMSA
Aug-14
-7.2%
-9.7%
-6.8%
-9.3%
-2.2%
-2.9%
-1.0%
-1.3%
Sep-14
2.1%
2.8%
2.3%
3.1%
-6.8%
-9.2%
-7.7%
-10.5%
Oct-14
-4.6%
-6.2%
-4.2%
-5.6%
-9.5%
-12.9%
-8.5%
-11.5%
-3.5%
-4.7%
-3.2%
-4.3%
-6.0%
-8.2%
-5.6%
-7.6%
3 Month Avg.
SUMMARY OF THE FORECAST FOR THE MEDIAN PRICE Illinois
Chicago PMSA
Illinois
Chicago PMSA
May-14
$167,591
$206,750
May-13
$155,000
$183,000
Jun-14
$179,900
$220,000
Jun-13
$170,000
$205,000
Jul-14
$179,000
$218,000
Jul-13
$167,000
$200,000
Aug-14
$177,979
$213,768
Aug-13
$165,000
$197,000
Sep-14
$169,075
$205,119
Sep-13
$155,000
$185,000
Oct-14
$164,075
$195,014
Oct-13
$150,000
$175,000
ANNUAL PERCENTAGE CHANGE OF THE MEDIAN PRICE Illinois
Chicago PMSA
Illinois
Chicago PMSA
May-14
8.1%
13.0%
May-13
6.9%
7.6%
Jun-14
5.8%
7.3%
Jun-13
9.7%
13.0%
Jul-14
7.2%
9.0%
Jul-13
13.4%
17.6%
Aug-14
7.9%
8.5%
Aug-13
12.2%
15.9%
Sep-14
9.1%
10.9%
Sep-13
11.5%
15.6%
Oct-14
9.4%
11.4%
Oct-13
11.9%
14.7%
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