Nov 20, 2014 - Housing Price Forecast: Illinois and Chicago PMSA, November 2014 ... areas. However, the forecasts indica
Housing Price Forecasts Illinois and Chicago PMSA, November 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
November 20, 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, November 2014 The Housing Market In October, while the annual changes of sales in Illinois and the Chicago PMSA diverged slightly, median housing prices in these two areas both experienced positive annual changes compared to last year. 12,983 houses were sold in Illinois, up by 0.2% compared to a year ago. In the Chicago PMSA, 9,146 houses were sold, 3.3% less than last October. The median price was $159,000 in Illinois, up 6.0% from October last year; the comparable figure for the Chicago PMSA was $185,000, up 5.7% from this time last year. While the trend of the state usually follows the trend of the Chicago PMSA, the situation for sales in October was different. The barely-changed sales in Illinois contrasted against the decrease in sales for the Chicago PMSA. This phenomenon was due to the increase in the share of non-Chicago PMSA sales out of total state sales. In October 2013, sales in the Chicago PMSA accounted for 73.1% of the statewide sales, but the comparable figure for this October decreased to 70.4%. Therefore, the change in the state was less dominated by the decrease in the Chicago PMSA, but rather balanced by the positive changes in the non-Chicago PMSA areas. However, the forecasts indicate that the sales in the Chicago PMSA will catch up in the next three months. The sales forecast for November, December and January 2014 suggests a downtrend for Illinois both annually and monthly, but different trends for the Chicago PMSA. Annually, the three-month average forecasts point to a change between -1.5% and -1.1% for Illinois; for the Chicago PMSA, the change will range from 0.9% to 1.2%. On a monthly basis, the three-month average sales are forecast to decrease by 11.1%-14.9% for Illinois and 10.7%14.3% for the Chicago PMSA. The median price forecast indicates mild to moderate annual increases in median prices for November, December and January compared to a year ago. In Illinois, the median price is forecast to rise by 8.4% in November, 5.5% in December and 8.7% in January. For the Chicago PMSA, the comparable figures are 7.2% in November, 3.7% in November and 4.8% in January. As a complement to the median housing price index (HPI), the REAL HPI1 forecast a milder trend for Illinois and a more robust growth for the Chicago PMSA. In Illinois, the REAL HPI (Jan 2008=1) is forecast to rise by 6.9% in November, 3.8% in December and 5.9% in January. The comparable figures for the Chicago PMSA are 9.5% in November, 6.2% in December and 5.7% in January. REAL HPI takes housing characteristics into account and constructs comparable “baskets” of homes for each month. In October 2014, 3,514 houses were newly filed for foreclosure and 3,134 foreclosures were completed2 in the Chicago PMSA, respectively 52.3% and 1.5% up from a month ago. Due to the higher filing rate compared to the completion rate, the inventory decreased more slowly and thus the projection for foreclosure inventory returning the pre-bubble level will be further 1 2
REAL HPI was developed by Esteban Lopez and Minshu Du. Contact us for further details. Including estimated foreclosure completions that are missing in the data.
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delayed. The average inventory change rates3 were -1.2% in the past 3 months, -3.7% in the last 6 months and -4.8% in the last 9 months. Given these rates of change, the foreclosure inventory would return to the pre-bubble levels4 by Jun 2020, Sept 2016 and Mar 2016 respectively. According to Prudential Real Estate’s consumer outlook survey, millennials are most confident and optimistic about the direction of the current housing market. However, according to NAR, first-time buyers (especially the millennials) recorded an historic low level in the past three decades. Back to 1981, 40% of the purchases were made by the first-time homebuyers while today this number has decreased to 33%. Given the still low interests rates and improving job market, would homes become more affordable to them? The government-sponsored enterprises are said to accept loans with as little as 3 percent down payment in 2015. While the purpose is to make homes more affordable for the poorer, studies from RealtyTrac indicates that its effect may be only restricted to borrowers without debt. They argue that borrowers without debt can afford a home no matter whether a 20 or 3 percent down payment is required, and those who have debts just may not even have been qualified for borrowing. The millennials are foremost likely facing student loans; thus, it is still a question mark if the desired healthy recovery of housing market can be boosted by younger homebuyers. The Housing Market – Current Condition In October, while the trend of sales in Illinois and the Chicago PMSA diverged slightly, median housing prices in the two areas both experienced positive annual changes compared to last year. 12,983 houses were sold in Illinois, edging up by 0.2% compared to a year ago. In the Chicago PMSA, 9,146 houses were sold, 3.3% less than last October. The median price was $159,000 in Illinois, up 6.0% from October last year; the comparable figure for the Chicago PMSA was $185,000, up 5.7% from this time last year. (Reference: Illinois and Chicago PMSA Total Home Sales and Median Home Sales Price figures; Forecast for November 2014 report table) In October for the Chicago PMSA, the percentage of foreclosed sales (e.g. REOs) among the total sales ticked up to 17.4%. 7,339 regular sales were made, a small increase (1.7%) from a year ago. 1,746 foreclosed properties were sold, 20.0% less than last October. The median price was $208,000 for regular property sales, up 2.0% from October last year; the comparable figure for the foreclosed properties was $120,000, up 4.3% from this time last year. (Reference: Sales and Median Sales Price for Chicago PMSA: Foreclosed vs. Regular) In October, at the latest average annual pending sales rate, Illinois had enough housing inventory for 5.7 months5 (down from 5.8 months a year ago). In the Chicago PMSA, the comparable figure was 4.3 months (up from 4.1 months a year ago). Months of supply are increasing for homes in all price ranges 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 3
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. 4 Average foreclosure inventory from 1997-2005 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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priced at the lower end in contrast to the Chicago PMSA that was dominated by increasing trend for more expensive homes. (Reference: Illinois and Chicago PMSA Annual Months’ Supply by Price Range figures) In October, homes priced below $100K held a smaller market share compared to a year ago, while homes at other, higher price ranges received increases in market shares. For Illinois, homes priced below $100K held a market share that decreased to 27.6% from 31.5% a year ago. The comparable figure for the Chicago PMSA was 20.4% decreasing from 24.3% recorded in October 2013. (Reference: Illinois and Chicago PMSA Price Stratification figures)
The Housing Market – Forecast and Future Condition The median price forecast indicates mild to moderate annual increases in median prices for November, December and January compared to a year ago. In Illinois, the median price is forecast to rise by 8.4% in November, 5.5% in December and 8.7% in January. For the Chicago PMSA, the comparable figures are 7.2% in November, 3.7% in November and 4.8% in January. (Reference: Forecast for November 2014 report table) As a complement to the median housing price index (HPI), the REAL HPI6 forecasts a milder trend for Illinois and a more robust growth for the Chicago PMSA. In Illinois, the REAL HPI (Jan 2008=1) is forecast to rise by 6.9% in November, 3.8% in December and 5.9% in January. The comparable figures for the Chicago PMSA are 9.5% in November, 6.2% in December and 5.7% in January. REAL HPI takes housing characteristics into account and constructs comparable “baskets” of homes for each month. (Reference: Housing Price Index) The sales forecast for November, December and January 2014 suggests a downtrend for Illinois both annually and monthly, but different trends for the Chicago. Annually, the three-month average forecasts point to a change between -1.5% and -1.1% for Illinois; for the Chicago PMSA, the change will range from 0.9% to 1.2%. On a monthly basis, the three-month average sales are forecast to decrease by 11.1%-14.9% for Illinois and 10.7%-14.3% for the Chicago PMSA. (Reference: Forecast for November 2014 report table) The pending home sales index7 is a leading indicator based on contract signings. This October, homes put under contract decreased for Illinois and increased for the Chicago PMSA. The pending home sales index is 130.3 (2008=100) in Illinois, down 3.0% from last month and 2.2% from a year ago. In the Chicago PMSA, the comparable figure is 154.4, up 1.4% from a month ago and 2.7% from a year ago. (Reference: Illinois and Chicago PMSA Pending Home Sales Index figure) In October 2014, 3,514 houses were newly filed for foreclosure in the Chicago PMSA (down 10.0% and up 52.3% respectively from a year and a month ago) and 3,134 foreclosures were completed8 (down 52.3% and up 1.5% respectively from a year ago and a month ago). Among all the completed foreclosures, 1,755 were REOs and 352 were sold through auctions. As of November 2014, there are 32,261 homes at some
6
REAL HPI was developed by Esteban Lopez and Minshu Du. Contact us for further details. The base level (100) of pending home sales is the average pending home sales of year 2008. 8 Including estimated foreclosure completions that are missing in the data. 7
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stage of foreclosures— the foreclosure inventory. The average inventory change rates9 were -1.2% in the past 3 months, -3.7% in the last 6 months and -4.8% in the last 9 months. Given these rates of change, the foreclosure inventory would return to the prebubble levels10 by Jun 2020, Sept 2016 and Mar 2016 respectively. (Reference: Chicago PMSA Foreclosure Activity and Inventory figures). The Economy
In October 2014, according to the Bureau of Labor Statistics (BLS) Employment Situation report, the national unemployment rate continue declining to 5.8% and nonfarm payroll jobs experienced gains of 214,000 jobs. Among all industries, food services and drinking places added the most jobs (+42,000), followed by retail trade (+27,000), health care (+25,000) and professional and business services (+37,000). In September 2014, according to the Illinois Department of Employment Security (IDES) news release, the Illinois unemployment rate fell to 6.6%. 19,300 non-farm payroll jobs were created. Through September 2014, Illinois has added 300,700 new private sector jobs since February 2010 when Illinois employment growth resumed after the national recession. In September 2014, the one-year-ahead forecast for Illinois indicates that the non-farm employment will edge up at a rate between 1.02 % and 1.27%, corresponding to job gains between 59,800 and 74,600. The total gains are forecast to be contributed by eight out of ten sectors: education and health (1.70%; 15,000), trade, transportation and utilities (1.17%; 13,800), construction (0.2%; 400), professional and business services (3.21%; 29,200), leisure and hospitality (1.62%; 8,900), financial activities (0.11%; 400), Government (0.20%; 1,700) and other services (1.52%; 3,900).
Longer-term Outlook
In October, the University of Michigan Consumer Sentiment Index increased to 86.9 – the highest since July 2007. According to their survey, wages and job growth explain the source of their optimism. Meanwhile, the slowing down global economic conditions and Ebola seemed not influencing consumers’ expectations towards the near future.
The Chicago Business Activity Index (CBAI) decreased to 98.7 in September from 103.0 in August. The fall is attributed to a decrease in job growth in the nonmanufacturing sector and to a fall in retail activity in the Chicago area.
“The housing market appears to be pausing in its positive sales growth trends, not unusual for this time of the year,” noted Geoffrey J.D. Hewings, Director of the Regional Economics Applications Laboratory of the University of Illinois. “Prices continue to improve and the forecasts suggest growth in the next three months. Recent declines in the reduction in the foreclosure housing inventory suggest that we may have to wait until 2016 at the earliest for a 9
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. 10 Average foreclosure inventory from 1997-2005
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return to pre-bubble levels.”
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Forecast for November 2014 report PERCENTAGE CHANGE FOR THE TOTAL NUMBER OF SALES Annual
Monthly
Illinois
Chicago PMSA
Illinois
Chicago PMSA
Aug-14
-9.2%
-11.9%
-4.6%
-6.7%
Sep-14
-3.4%
-5.3%
-12.6%
-12.4%
Oct-14
0.2%
-3.3%
-0.2%
-0.8%
-4.5%
-7.2%
-6.0%
-6.9%
3 Month Avg.
SUMMARY OF THE FORECAST INTERVALS FOR THE TOTAL NUMBER OF SALES Annual Illinois
Monthly
Chicago PMSA
Illinois
Chicago PMSA
Nov-14
2.0%
2.7%
4.7%
6.3%
-11.8%
-15.8%
-8.9%
-11.9%
Dec-14
-7.4%
-9.9%
-2.9%
-3.8%
-5.4%
-7.2%
-2.1%
-2.8%
Jan-15
3.4%
4.6%
1.1%
1.5%
-16.4%
-21.9%
-21.5%
-28.8%
-1.1%
-1.5%
0.9%
1.2%
-11.1%
-14.9%
-10.7%
-14.3%
3 Month Avg.
SUMMARY OF THE FORECAST FOR THE MEDIAN PRICE Illinois
Chicago PMSA
Illinois
Chicago PMSA
Aug-14
$175,000
$215,000
Aug-13
$165,000
$197,000
Sep-14
$161,750
$195,000
Sep-13
$155,000
$185,000
Oct-14
$159,000
$185,000
Oct-13
$150,000
$175,000
Nov-14
$157,215
$181,726
Nov-13
$145,000
$169,500
Dec-14
$156,696
$183,099
Dec-13
$148,500
$176,500
Jan-15
$147,586
$170,870
Jan-14
$135,800
$163,000
ANNUAL PERCENTAGE CHANGE OF THE MEDIAN PRICE Illinois
Chicago PMSA
Illinois
Chicago PMSA
Aug-14
6.1%
9.1%
Aug-13
12.2%
15.9%
Sep-14
4.4%
5.4%
Sep-13
11.5%
15.6%
Oct-14
6.0%
5.7%
Oct-13
11.9%
14.7%
Nov-14
8.4%
7.2%
Nov-13
7.4%
9.4%
Dec-14
5.5%
3.7%
Dec-13
13.4%
17.7%
Jan-15
8.7%
4.8%
Jan-14
8.6%
16.4%
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Forecast for October 2014 report PERCENTAGE CHANGE FOR THE TOTAL NUMBER OF SALES Annual
Monthly
Illinois
Chicago PMSA
Illinois
Chicago PMSA
Jul-14
-5.3%
-6.7%
-2.2%
-1.5%
Aug-14
-9.4%
-12.2%
-4.8%
-6.8%
Sep-14
-4.4%
-6.4%
-13.3%
-13.2%
-6.5%
-8.5%
-6.6%
-7.0%
3 Month Avg.
SUMMARY OF THE FORECAST INTERVALS FOR THE TOTAL NUMBER OF SALES Annual Illinois
Monthly
Chicago PMSA
Illinois
Chicago PMSA
Oct-14
-1.7%
-2.2%
-4.2%
-5.6%
-1.2%
-1.6%
-1.1%
-1.5%
Nov-14
6.7%
9.0%
9.0%
12.2%
-6.0%
-8.1%
-3.8%
-5.1%
Dec-14
1.6%
2.1%
1.6%
2.2%
-0.7%
-1.0%
-1.6%
-2.2%
2.0%
2.7%
1.7%
2.3%
-2.7%
-3.6%
-2.2%
-2.9%
3 Month Avg.
SUMMARY OF THE FORECAST FOR THE MEDIAN PRICE Illinois
Chicago PMSA
Illinois
Chicago PMSA
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
$161,900
$195,000
Sep-13
$155,000
$185,000
Oct-14
$156,900
$188,708
Oct-13
$150,000
$175,000
Nov-14
$155,130
$184,371
Nov-13
$145,000
$169,500
Dec-14
$154,593
$186,910
Dec-13
$148,500
$176,500
ANNUAL PERCENTAGE CHANGE OF THE MEDIAN PRICE Illinois
Chicago PMSA
Illinois
Chicago PMSA
Jul-14
7.2%
9.0%
Jul-13
13.4%
17.6%
Aug-14
6.1%
9.1%
Aug-13
12.2%
15.9%
Sep-14
4.5%
5.4%
Sep-13
11.5%
15.6%
Oct-14
4.6%
7.8%
Oct-13
11.9%
14.7%
Nov-14
7.0%
8.8%
Nov-13
7.4%
9.4%
Dec-14
4.1%
5.9%
Dec-13
13.4%
17.7%
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