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

Housing Price Forecasts Illinois and Chicago PMSA, December 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

December 19, 2013

Contact:

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

Housing Forecast

December 2013

2

Housing Price Forecast: Illinois and Chicago PMSA, December 2013 The Housing Market In November 2013, sales experienced their first negative annual growth in the last 29 months while median prices continued their positive annual growth that has extended for the past fifteen months. This month, both Illinois and the Chicago PMSA experienced a slight loss in sales and milder growth in median prices on a yearly base. 10,624 houses were sold in Illinois, 1.8% less than a year ago. In the Chicago PMSA, 7,640 houses were sold, 1.3% less than last November. The median price was $145,000 in Illinois, up 7.4% from November last year. Comparable figures for the Chicago PMSA were $169,900 with an annual increase rate of 9.6%. Including the new break in the past trend of growth observed in sales and median prices in November, the forecast indicates moderate annual increases in median prices and very small growth in sales. In Illinois, the median price is forecast to rise by 8.1% in December 2013, 10.3% in January, 2014 and 8.5% in February, 2014. For the Chicago PMSA, the comparable figures are 11.0% in December 2013, 11.9% in January 2014 and 10.8% in February 2014. The sales forecast for December 2013, January and February 2014 suggests weaker growth rates after the year-over-year dip in November, 2013. On a yearly basis, the three-month average forecasts point to increases of 2.2% to 3.0% for Illinois and 1.8% to 2.5% for Chicago PMSA. It is still early to say whether the market has stabilized to more modest trends in prices and sales, given the one-month halt in the sales growth and milder growth in median housing prices. Analysts are divided as to whether this is an adjustment to a market that was perhaps overheating, fall-out from the government shutdown or a response to higher interest rates. In addition, some periods of colder-than-normal weather in November may have contributed. Although the passage of a proposed government budget plan in the U.S. House has reduced some concerns about the government dysfunction, discussions on the debt ceiling and the end of federal emergency unemployment compensation, for instance, can still influence the housing market through the impact on consumer sentiment. Considerable concerns exist about declining affordability that is also being accompanied by sharp rises in rental prices. Looking a few years back, the rental market was actively favored when the for-sale housing market was in the turmoil. Advantages of the renting market such as mobility, affordability and flexibility in an era of market uncertainties were prominent features of this market segment. According to a rental housing report by the Joint Center for Housing Studies of Harvard University, rental shares in this country climbed from 31% in 2004 to 35% in 2012. This outcome appears to be in conflict with earlier government goals that aimed to promote homeownership, while loose lending - a byproduct of the promotion of homeownership eventually induced the further collapse of housing market and the wider economic recession. The rental market is now characterized by rising rents and decreasing vacancy rates. According to the Harvard report, rents experienced positive annual increases between 0.2% and 2.8% over the past five years and the vacancy rates have decreased from 10.6% in 2009 to 8.5% in 2013. However, the most important finding is the increasing cost burden being carried by renters.

Housing Forecast

December 2013

3

While increasing rent imposes income effects on all renters, households within the lowest income quantile will certainly bear more of the burden than others. By 2011, 50.5% of renters were paying more than one third of their household income for rents (a moderate burden comparable to the costs of home ownership), while 27.5% of the renters were paying more than half of their income for the rents (clearly, a severe burden). The comparative figures for ten years ago were 38% and 20%; at that time, there was already generated great concern about the affordability of all forms of housing. These developments add to concern about housing affordability for the lower income quartiles, not only in the renting market but also in terms of home purchases. First, there exists a limited supply of cheaper housing. While the supply of low-cost rental housing is limited, the months’ supply of for-sale homes at the lower price end of the spectrum also decreased at the largest rate among all other price ranges. The months of supply for homes priced below $100K decreased by 34.2% and 51.3% respectively in Illinois and Chicago PMSA, to 4.7 months and 2.8 months on a yearly basis. Secondly, increasing housing prices constrains the alternatives to renting limiting the ability of many households to move from renting to house purchase. When the housing price is low and mortgage interest rates are low, would-be renters are more likely to consider buying given paying increasing rents. However, since the for-sale housing market is on a positive trend in the past several months, lower income households will be more restricted in terms of their buying options. Finally, while there might have been cheaper options derived from the foreclosure inventory, this inventory has been on continuously decreasing for last fifteen months based on the data in Chicago PMSA. According to REAL’s projection, given the average monthly change rates of the last 6 months (-8.1%), the foreclosure inventory would return to the pre-bubble levels by November 2014. There has been some positive news is the recent employment situation that that may contribute to tackling affordability problems in general. In October 2013, according to Illinois Department of Employment Security (IDES) news release, Illinois unemployment rate fell to 8.9% and a total of 25,700 payroll jobs were created in September and October, the largest two-month gain since May 2010. At the national level, the employment situation in November was also encouraging with the unemployment rate dropping to 7.0% and 203,000 nonfarm payroll jobs generated. Moreover, another piece of good news for this state is the improvement in its debt rating by Standard & Poor’s Corp, moving from negative to developing. The better economic environment contributes significantly to a healthier housing market recovery. The Housing Market – Current Condition 

In November, both Illinois and the Chicago PMSA experienced a slight loss in sales and milder growth in median prices on a yearly base. 10,624 houses were sold in Illinois, 1.8% less than a year ago. In the Chicago PMSA, 7,640 houses were sold, 1.3% less than last November. The median price was $145,000 in Illinois, up 7.4% from November 2012. Comparable figures for the Chicago PMSA were $169,900 with an annual increase rate of 9.6%. (Reference: Illinois and Chicago PMSA Total Home Sales and Median Home Sales Price figures; Forecast for November 2013 report table)

Housing Forecast

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

December 2013

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In November, at the latest average annual pending sales rate, Illinois had enough housing inventory for 4.7 months1 (down from 7.0 months a year ago). In the Chicago PMSA, the comparable figure was 3.2 months (down from 5.6 months a year ago). While homes at all price ranges in Illinois have experienced a decline in their months’ supply by about 30%, homes at different price ranges in the Chicago PMSA have months’ supply that decreased between 30%-55%. At all price ranges, the decline in their months of supply can be traced to both lower inventory and higher pending sales. (Reference: Illinois and Chicago PMSA Annual Months’ Supply by Price Range figures) In November, 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 32.1% from 35.8% a year ago. The comparable figure for the Chicago PMSA was 25.2%, a large decrease of 30.6% from November 2012. (Reference: Illinois and Chicago PMSA Price Stratification figures)

The Housing Market – Forecast and Future Condition  The price forecast indicates milder annual increases in median prices for December, January and February. In Illinois, the median price is forecast to rise by 8.1% in December this year, 10.3% in January and 8.5% in February 2014. For the Chicago PMSA, the comparable figures are 11.0% in December this year, 11.9% in January and 10.8% in February 2014 (Reference: Forecast for December 2013 report table)  The sales forecast for December 2013, January and February 2014 suggests weak growth after the year-over-year dip in November 2013. On a yearly basis, the three-month average forecasts point to increases of 2.2% to 3.0% for Illinois and 1.8% to 2.5% for Chicago PMSA. (Reference: Forecast for December 2013 report table)  The pending home sales index2 is a leading indicator based on contract signings. This November, homes put under contract increased on both a monthly and yearly basis. The pending home sales index is 112.3 (2008=100) in Illinois, down 17.7% from last month and 4.0% from a year ago. In the Chicago PMSA, the comparable figure is 135.4, down 15.0% from last month and 10.4% from a year ago. (Reference: Illinois and Chicago PMSA Pending Home Sales Index figure)  In November 2013, 2,874 houses were newly filed for foreclosures in the Chicago PMSA (down 23.1% from a year and down 26.1% from a month ago) and 3,615 foreclosures were closed3 (up 3.2% from a year ago and down 27.0% from a month ago). The average inventory change rates were -8.1% in the past 6 months, -5.9% in the last 12 months and -3.3% in the last 24 months. Given these rates of change, the foreclosure inventory would return to the pre-bubble levels by November 2014, April 2015 and July 2016. (Reference: Chicago PMSA Foreclosure Activity and Inventory figures).

1

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. 2 The base level (100) of pending home sales is the average pending home sales of year 2008. 3 This is when an auction occurs, no matter what the auction results are.

Housing Forecast

December 2013

5

The Economy 



In November 2013, according to the Bureau of Labor Statistics (BLS) Employment Situation report, the national unemployment rate decreased to 7.0% from 7.3% last month. The number of nonfarm payroll jobs experienced a gain of 203,000. The largest job creation was led by transportation and warehousing (+31,000), health care (+28,000), followed by manufacturing (+27,000). In October 2013, according to Illinois Department of Employment Security (IDES) news release, Illinois unemployment rate fell to 8.9% and a total of 25,700 payroll jobs were created in September and October, the largest two-month gains since May 2010. By October 2013, Illinois has added 268,900 new private sector jobs since January 2010 when Illinois employment growth resumed after the national recession.

Longer-term Outlook 

Two consumer confidence indices revealed different consumer sentiment in November. The Conference Board Consumer Confidence Index continued to decrease to 70.4 (1985=100) from 72.4% last month. Although consumers have positive sentiments on the current job market situation, their sentiments on business conditions and short-term outlook are not optimistic. The University of Michigan Consumer Sentiment Index edged up to 75.1 after it decreased from 77.5 in September to 73.2 in October. This fluctuation is described as stagnation of consumers’ sentiment.



The Chicago Business Activity Index (CBAI) decreased to 94.7 in October from 98.6 in September. The fall is attributed to slower national economic activities and the decline in the Chicago area’s retail activities.

“As with many other markets, the Chicago and Illinois housing sales dipped into the negative range after 29 months of positive growth, but prices continued to inch forward.” ” noted Geoffrey J.D. Hewings, Director of the Regional Economics Applications Laboratory of the University of Illinois. “One of the greatest concerns in the housing market is the shrinking inventory of lower-priced homes presenting a challenge to lower income households many of whom are paying upwards of 50% of their incomes on rent.”

Housing Forecast

December 2013

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

Monthly

Illinois

Chicago PMSA

Illinois

Chicago PMSA

Sep-13

23.6%

27.4%

-17.9%

-18.6%

Oct-13

7.1%

10.9%

-4.8%

-3.1%

Nov-13

-1.8%

-1.3%

-16.9%

-18.9%

9.6%

12.2%

-23.9%

-24.3%

3 Month Avg.

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

Monthly

Chicago PMSA

Illinois

Chicago PMSA

Dec-13

2.4%

3.3%

2.3%

3.1%

1.0%

1.4%

0.8%

1.1%

Jan-14

0.4%

0.6%

-0.4%

-0.6%

-16.3%

-22.1%

-15.4%

-20.8%

Feb-14

3.9%

5.2%

3.7%

5.0%

0.8%

1.1%

0.2%

0.2%

2.2%

3.0%

1.8%

2.5%

-19.9%

-27.0%

-20.4%

-27.5%

3 Month Avg.

SUMMARY OF THE FORECAST FOR THE MEDIAN PRICE Illinois

Chicago PMSA

Illinois

Chicago PMSA

Sep-13

$155,000

$185,000

Sep-12

$139,000

$160,000

Oct-13

$150,000

$175,000

Oct-12

$134,000

$152,538

Nov-13

$145,000

$169,900

Nov-12

$135,000

$155,000

Dec-13

$141,587

$166,497

Dec-12

$131,000

$150,000

Jan-14

$137,935

$156,623

Jan-13

$125,000

$140,000

Feb-14

$134,587

$155,145

Feb-13

$124,000

$140,000

ANNUAL PERCENTAGE CHANGE OF THE MEDIAN PRICE Illinois

Chicago PMSA

Illinois

Chicago PMSA

Sep-13

11.5%

15.6%

Sep-12

2.2%

0.0%

Oct-13

11.9%

14.7%

Oct-12

3.5%

2.4%

Nov-13

7.4%

9.6%

Nov-12

5.5%

3.4%

Dec-13

8.1%

11.0%

Dec-12

4.8%

3.4%

Jan-14

10.3%

11.9%

Jan-13

1.6%

0.0%

Feb-14

8.5%

10.8%

Feb-13

5.1%

3.7%

Housing Forecast

December 2013

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

Monthly

Illinois

Chicago PMSA

Illinois

Chicago PMSA

Aug-13

18.9%

26.0%

-1.2%

-1.2%

Sep-13

21.1%

27.1%

-18.1%

-18.8%

Oct-13

3.8%

9.6%

-5.7%

-4.1%

14.6%

20.9%

-12.0%

-10.6%

3 Month Avg.

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

Monthly

Chicago PMSA

Illinois

Chicago PMSA

Nov-13

16.6%

22.5%

23.4%

31.7%

3.8%

5.1%

5.3%

7.1%

Dec-13

13.1%

17.7%

16.8%

22.7%

-5.9%

-8.0%

-7.6%

-10.2%

Jan-14

27.5%

37.2%

28.8%

38.9%

-4.3%

-5.8%

-4.7%

-6.4%

18.5%

25.1%

22.7%

30.7%

-10.5%

-14.2%

-9.8%

-13.2%

3 Month Avg.

SUMMARY OF THE FORECAST FOR THE MEDIAN PRICE Illinois

Chicago PMSA

Illinois

Chicago PMSA

Aug-13

$167,000

$197,000

Aug-12

$147,500

$170,000

Sep-13

$158,000

$185,000

Sep-12

$139,900

$160,000

Oct-13

$153,000

$175,000

Oct-12

$134,000

$152,538

Nov-13

$152,756

$177,041

Nov-12

$135,000

$155,000

Dec-13

$149,444

$171,773

Dec-12

$132,000

$150,000

Jan-14

$145,742

$164,565

Jan-13

$125,000

$140,000

ANNUAL PERCENTAGE CHANGE OF THE MEDIAN PRICE Illinois

Chicago PMSA

Illinois

Chicago PMSA

Aug-13

13.2%

15.9%

Aug-12

-0.7%

-2.9%

Sep-13

12.9%

15.6%

Sep-12

2.1%

0.0%

Oct-13

14.2%

14.7%

Oct-12

3.1%

2.4%

Nov-13

13.2%

14.2%

Nov-12

4.7%

3.4%

Dec-13

13.2%

14.5%

Dec-12

5.2%

3.4%

Jan-14

16.6%

17.5%

Jan-13

1.0%

0.0%

Housing Forecast

December 2013

8

Illinois Median Home Sales Price

2011

$180,000

2012 2013

$170,000

Forecast

Median Sales Price

$165,000 $160,000 $150,131 $150,000 $140,000 $130,000

$145,000

$145,000

$137,935

$134,587

$141,587

$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 16,440 16,000

15,381

2013

13,437

14,000

Total Sales

2012 16,357

12,842 12,792

12,000 10,000 8,000

10,454 8,502

10,624 8,388

6,484

6,000 5,646 4,000 Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec


Housing Forecast

December 2013

9

Chicago PMSA Median Home Sales Price $210,000

2011

$205,000

2012

$200,000

Median Sales Price

2013

$185,000

$190,000

Forecast

$180,000 $166,497

$170,000 $160,000

$169,900

$156,623 $155,145

$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

12,079 12,000

11,372

9,720

10,000

Total Sales

2013

11,941

11,167

9,418

9,310 8,070

8,000

7,640 6,351

6,000

6,069

4,564 4,000 2,000 Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec


Oct-13

Jul-13

Apr-13

Jan-13

Oct-12

20%

Jul-12

Apr-12

Jan-12

Oct-11

30%

Jul-11

IL Pending Index

Apr-11

Jan-11

Oct-10

Jul-10

Apr-10

Jan-10

Oct-09

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 Sep-13 Nov-13

20

Jul-09

Apr-09

Jan-09

Oct-08

Jul-08

5%

Apr-08

Jan-08

Housing Forecast December 2013 10

Pending Home Sales Index

260

220

180

140

100

60

Chicago Pending Index


Sales Ratio of Foreclosed Properties Chicago PMSA-3 Month Average

35%

28.6%

25% 20.6%

20.4%

15%

10%

8.0%

0%

Housing Forecast

December 2013

11

Illnois Annual Months' Supply by Price Range 4.7

Overall

7.0 7.4

700K~UP

10.7 4.9

Price by Ranges

500K~700K

7.5 4.7

300K~500K

6.3 4.6

200K~300K

6.6 4.5

100K~200K

2013 Nov

6.8

2013 Oct

4.7

0 ~100K -1.0

2012 Nov

7.2 1.0

3.0

5.0

7.0

9.0

11.0

13.0

15.0


Chicago Annual Months' Supply by Price Range 3.2 Overall

5.6 5.7

700K~UP

8.6 3.6

Price by Ranges

500K~700K

5.7 3.4

300K~500K

4.9 3.3

200K~300K

5.4 3.0

2013 Nov

100K~200K

5.6

2013 Oct

2.8

0 ~100K

2012 Nov

5.8 0.0

2.0

4.0

6.0

8.0

10.0

12.0


Housing Forecast

December 2013

12

Illinois Price Stratification 40% 35.8% 35%

2013 Nov

33.2% 32.5%

32.1%

2013 Oct

Share of Total Sales

30%

2012 Nov

25% 20%

16.8%

15.2%

15%

11.5%

10.7%

10% 3.5% 5%

3.1%

3.1%

2.8%

0% 0 ~100K

100K~200K

200K~300K

300K~500K

500K~700K

700K~UP


Chicago PMSA Price Stratification 40% 2013 Nov

32.3%

35% 30.6%

31.4%

2013 Oct

30%

Share of Total Sales

25.2%

2012 Nov

25% 19.3% 20% 16.6%

14.4% 13.4%

15% 10%

4.7% 5%

4.1%

4.2%

3.8%

0% 0 ~100K

100K~200K

200K~300K

300K~500K

500K~700K

700K~UP


Jul-07

Oct-13

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

90000

Apr-07

Jan-07

Oct-06

Jul-06

Apr-06

Jan-06

Axis Title

Oct-13

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 December 2013 13

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

80000 Average Inventory 1997-2005

70000

60000

50000

40000

30000

20000

10000

0

Housing Forecast

December 2013

14

Chicago PMSA Foreclosure Inventory Recover Schedule 100000

November, 2014 90000

April, 2015

80000 70000

July, 2016

60000 50000

40000 30000 20000 10000

Jul-22

Jan-23

Jul-21

Jan-22

Jul-20

Jan-21

Jul-19

Jan-20

Jul-18

Jan-19

Jul-17

Jan-18

Jul-16

Jan-17

Jan-16

Jul-15

Jul-14

Jan-15

Jul-13

Jan-14

Jul-12

Jan-13

Jul-11

Jan-12

Jul-10

Jan-11

Jul-09

Jan-10

Jul-08

Jan-09

Jul-07

Jan-08

Jul-06

Jan-07

Jan-06

0

Inventory Projection with the last 24 months' inventory change rate

Inventory Projection with last 12 months' inventory change rate

Inventory Projection with last 6 months' inventory change rate

Foreclosure Inventory

Average Inventory 1997-2005