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

Housing Price Forecasts Illinois and Chicago PMSA, September 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

September 19, 2013

Contact:

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

Housing Forecast

September 2013

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Housing Price Forecast: Illinois and Chicago PMSA, September 2013 The Housing Market In August, both Illinois and the Chicago PMSA continued to experience year-over-year gains in sales and median prices. 15,815 houses were sold in Illinois, 17.3% more than a year ago. In the Chicago PMSA, 11,771 houses were sold, 24.3% more than last August. The median price was $167,000 in Illinois, up 13.6% from August last year. Comparable figures for the Chicago PMSA were $197,000 with an annual increase rate of 15.9%. The price forecast indicates continuing annual increases in median prices for September, October and November. In Illinois, the median price is forecast to rise by 13.6% in September, 13.9% in October and 12.7% in November. For the Chicago PMSA, the comparable figures are 16.4% in September, 15.7 % in October and 15.7 % in November. The sales forecast for September, October and November 2013 suggests continuing gains. On a year-over-year basis, the three month average forecasts point to increases of 22.3% to 30.2% for Illinois and 27.5% to 37.3% for Chicago PMSA. This is also supported by the annual increase in pending home sale index, 16.9% for Illinois and 26.3% for Chicago PMSA. Given the high annual price change rates - around or higher than 10% in the past three months and forecasted for the upcoming months, some analysts might reflect on the source of these growth trends. The higher median prices could be a result of more transactions of homes with higher prices (due to better characteristics, neighborhood and physical conditions), or a result of the real increases in the price level of the housing market given the same qualities of homes. While the latter case is usually what one would like see sustaining a housing recovery, the current high year-over-year growth is likely to be fueled by the former case especially increased market share of non-stressed (i.e., non-foreclosed) properties. In Chicago PMSA, the sales ratio of foreclosed properties trended down to 18.1% in this August from 20.3% a year ago. (See the figure “Sales Ratio of Foreclosed Properties”). The decreasing ratio of foreclosed property left a market consisting of “better” properties (non-foreclosed), that usually have higher re-sale prices than foreclosed properties given the equivalent size and other similar house characteristics. As a result, the increasing median prices are partially explained by the change of the market structure rather than simply a simple story of robust housing market recovery. Eventually, the shadow inventory held by banks or stuck in the foreclosure process will return to the housing market; and this can be a slow process and may continue to dampen the housing market in the year ahead. According to an article in Crain’s Chicago Business, the Federal Neighborhood Stabilization Program (NSP) is not progressing as well as expected. The program has been trying to acquire and rehab foreclosed properties from the banks and looking for new buyers and renters. However, from early 2009 until late June this year, only 538 housing units were rehabbed, among which 96 units were sold and 109 rented. This is still far from the city’s goal of rehabilitating 2,000 to 2,500 units. In addition to certain acquisition difficulties and regulatory requirements, the slow pace of rehabbing is often related to its high cost. There was an example

Housing Forecast

September 2013

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in which $19,000 was needed to acquire, $297,407 to rehab but the final sale’s price was only $85,000. Further, the housing prices increment has not been able to reduce potential foreclosures. RealTrac LLC. reported that 40% of the homes in Illinois are still deeply underwater. As for foreclosures stuck in the pipeline, REAL projects a new recovery schedule of foreclosure inventory using past change rates1 of foreclosure inventory.2 Given the average monthly change rates of the last 6 months (-8.6%), 12 months (-5.5%) and 24 months (-3.1%), the foreclosure inventory would return to the pre-bubble level3 by September 2014, April 2015 and September 2016. Thus, adjustment of over-optimistic expectations and patience are necessary to in understanding the pace of the market recovery. In addition, the broader economy nationwide adds more noise to the market. On the one hand, the majority of economists in a Wall Street Journal survey expect the pullback of government bond buying in the middle of September. On the other hand, the accelerated real GDP with a growth rate of 2.5% (seasonally adjusted for the second quarter) released by the Bureau of Economic Analysis (BEA) has largely come from exports and nonresidential investment rather than a strong growth of domestic consumption. However, with still weak inflation and flat employment growth, it is hard to predict what the Federal Reserve’s action will be towards their bond buying program. Further, consumers’ confidence about the future conditions are also influenced by the Fed’s actions. The Housing Market – Current Condition  In August, both Illinois and the Chicago PMSA experienced gains in sales and median prices on a yearly base. 15,815 houses were sold in Illinois, 17.3% more than a year ago. In the Chicago PMSA, 11,771 houses were sold, 24.3% more than last August. The median price was $167,000 in Illinois, up 13.6% from August last year. Comparable figures for the Chicago PMSA were $197,000 with an annual increase rate of 15.9%. (Reference: Illinois and Chicago PMSA Total Home Sales and Median Home Sales Price figures; Forecast for August 2013 report table)  In August, at the latest average annual pending sales rate, Illinois had enough housing inventory for 5.2 months4 (down from 8.4 months a year ago). In the Chicago PMSA, the comparable figure was 3.5 months (down from 7.0 months a year ago). Homes priced lower than $100K decreased most in their inventory by -29% for Illinois and -51% for the Chicago PMSA on an annual basis. Homes with listing prices below $200K decreased from 64% a year ago to 60% in Illinois and from 59% to 48% in Chicago 1

Different from previous reports using foreclosure in/out ratio to project the recovery of the inventory level, this report applies the monthly inventory change rates. 2 Foreclosure inventory is defined as any case between new filing and foreclosure auction. Since more than half of the filed foreclosures were not closed with an auction and the data cannot track those, assumptions are made to project closing date for those cases. 3 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. 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.

Housing Forecast

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September 2013

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PMSA. (Reference: Illinois and Chicago PMSA Annual Months’ Supply by Price Range figures) In August, 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 26.7% from 31.7% a year ago. The comparable figure for the Chicago PMSA was 20.4% from 26.7%. (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 September, October and November. In Illinois, the median price is forecast to rise by 13.6% in September, 13.9% in October and 12.7% in November. For the Chicago PMSA, the comparable figures are 16.4% in September, 15.7 % in October and 15.7 % in November (Reference: Forecast for August 2013 report table)  The sales forecast for September, October and November 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 22.3% to 30.2% for Illinois and 27.5% to 37.3% for Chicago PMSA. (Reference: Forecast for August 2013 report table)  The pending home sales index5 is a leading indicator based on contract signings. This August, homes put under contract increased on a yearly basis but decreased slightly from a month ago. The pending home sales index is 161.9 (2008=100) in Illinois, down -4.0% from last month and 16.9% up from a year ago. In the Chicago PMSA, the comparable figure is 192.1, down -1.1% from last month and 26.3% up from a year ago. (Reference: Illinois and Chicago PMSA Pending Home Sales Index figure)  In August 2013, 2,554 houses were newly filed for foreclosures in the Chicago PMSA (down 65.9% from a year ago) and 4,685 foreclosures were closed6 (up 25.9% from a year ago). The inventory change rates were -8.6% in the past 6 months, -5.5% in the last 12 months and -3.1% in the last 24 months. Given these change rates, the foreclosure inventory would return to the pre-bubble levels by September 2014, April 2015 and September 2016. (Reference: Chicago PMSA Foreclosure Activity and Inventory figures). The Economy 

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In August 2013, according to the Bureau of Labor Statistics (BLS) Employment Situation report, the unemployment rate edged down slightly to 7.3% largely due to the decline of the labor force by 312,000. The number of nonfarm payroll jobs experienced a gain by 169,000, lower than the average monthly job gains (184,000) in the past 12 months. The largest job creation was led by retail trade (+44,000) as last month, followed by health care (+33,000). Among housing-market related sectors, real estate and rental and leasing lost 3,600 jobs while residential specialty trade contractors added 4,900 positions and residential building lost 600 jobs.

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

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September 2013

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In July 2013, the one-year-ahead forecast indicates that the employment will grow at a rate between 0.86% and 1.16%, corresponding to job creations between 49,900 and 67,000. The forecast of job growth rate is led by Professional & business services (4.43%; 39,500), Education and health (2.01%; 17,700), and Financial Activities (1.90%; 7,100).

Longer-term Outlook 

Two consumer confidence indexes both revealed negative appraisals of current conditions but different outlooks for future conditions. The Conference Board Consumer Confidence Index was little changed at 81.5 (1985=100). Consumers’ higher expectations of income and labor market conditions are balanced out by lower appraisal of current business and hiring conditions. The University of Michigan Consumer Sentiment Index, however, decreased to 82.1 from its highest value of the past six years of 85.1 in last month. This decrease was mixed with positive expectations of future incomes, uncertainty about employment situations and more dominantly rises in interest rates.



The Chicago Business Activity Index (CBAI) decreased to 91.7 in July from 94.9 in June. The fall is attributed to the nationwide employment decrease in manufacturing and construction sectors.

“Price and sales recovery continues and the forecast for the last quarter suggest that the momentum will be maintained,” noted Geoffrey J.D. Hewings, Director of the Regional Economics Applications Laboratory of the University of Illinois. “The price mix of homes sold is moving back to pre-recession levels as price increases move more homes into higher categories and as home buyers begin to seek more expensive properties. The sluggish economic recovery and increasing mortgage interest rates have not yet dampened housing demand.”

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September 2013

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

Monthly

Illinois

Chicago PMSA

Illinois

Chicago PMSA

Jun-13

17.4%

21.3%

1.5%

1.7%

Jul-13

29.8%

37.6%

3.7%

6.0%

Aug-13

17.3%

24.3%

-2.2%

-2.2%

21.3%

27.5%

20.8%

23.2%

3 Month Avg.

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

Monthly

Chicago PMSA

Illinois

Chicago PMSA

Sep-13

25.3%

34.2%

32.0%

43.3%

-9.2%

-12.5%

-9.2%

-12.4%

Oct-13

18.3%

24.8%

23.1%

31.3%

2.5%

3.4%

2.4%

3.3%

Nov-13

23.8%

32.3%

28.0%

37.9%

-3.8%

-5.2%

-3.9%

-5.3%

22.3%

30.2%

27.5%

37.3%

-9.1%

-12.4%

-8.6%

-11.6%

3 Month Avg.

SUMMARY OF THE FORECAST FOR THE MEDIAN PRICE Illinois

Chicago PMSA

Illinois

Chicago PMSA

Jun-13

$170,000

$205,000

Jun-12

$155,000

$181,450

Jul-13

$168,640

$200,000

Jul-12

$147,720

$170,000

Aug-13

$167,000

$197,000

Aug-12

$147,000

$170,000

Sep-13

$157,968

$186,247

Sep-12

$139,000

$160,000

Oct-13

$152,566

$176,421

Oct-12

$134,000

$152,538

Nov-13

$152,179

$179,411

Nov-12

$135,000

$155,000

ANNUAL PERCENTAGE CHANGE OF THE MEDIAN PRICE Illinois

Chicago PMSA

Illinois

Chicago PMSA

Jun-13

9.7%

13.0%

Jun-12

3.3%

0.8%

Jul-13

14.2%

17.6%

Jul-12

-2.2%

-6.1%

Aug-13

13.6%

15.9%

Aug-12

-0.7%

-2.9%

Sep-13

13.6%

16.4%

Sep-12

1.8%

0.0%

Oct-13

13.9%

15.7%

Oct-12

3.2%

2.4%

Nov-13

12.7%

15.7%

Nov-12

5.1%

3.4%

Housing Forecast

September 2013

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

Monthly

Illinois

Chicago PMSA

Illinois

Chicago PMSA

June-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

June-13

$155,000

$183,000

June-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

June-13

6.9%

7.6%

June-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

September 2013

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Illinois Median Home Sales Price

2011

$180,000

2012 2013

$170,000

Median Sales Price

Forecast $160,000

$157,968

$151,100

$152,179

$150,000

$152,566

$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 15,598

16,000

2013

15,815

15,364

14,000

Total Sales

2012

16,179

12,836

13,486

12,000 10,000 8,000

10,452 8,502

8,386

6,484

6,000 5,606 4,000 Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec


Housing Forecast

September 2013

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Chicago PMSA Median Home Sales Price

2011

$210,000

2012 $200,000

2013

Median Sales Price

$190,000

Forecast $186,247

$180,000 $172,825 $170,000

$176,421

$179,411

$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

12,037 12,000

2013

11,771

11,161 11,353

Total Sales

10,000

9,471

9,308 8,065

8,000 6,350 6,000

6,067

4,564 4,000 2,000 Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec


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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

IL Pending Index

15%

Jul-13

Apr-13

Jan-13

Oct-12

20%

Jul-12

Apr-12

Jan-12

Oct-11

Jul-11

30%

Apr-11

Jan-11

Oct-10

Jul-10

Apr-10

Jan-10

Oct-09

Jul-09

Apr-09

Jan-09

Oct-08

Jul-08

5%

Apr-08

Jan-08

Housing Forecast September 2013 10

Sales Ratio of Foreclosed Properties Chicago PMSA-3 Month Average 28.5%

25%

20.3% 18.1%

10%

7.7%

0%

Pending Home Sales Index

260

220

180

140

100

60

Chicago Pending Index


Housing Forecast

September 2013

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Illnois Annual Months' Supply by Price Range 5.2

Overall

8.4 9.2

700K~UP

13.3 6.0

Price by Ranges

500K~700K

9.5 5.5

300K~500K

8.3 5.3

200K~300K

8.2 4.9

100K~200K

2013 Aug

8.4

2013 July

4.8

0 ~100K -1.0

2012 Aug

8.0 1.0

3.0

5.0

7.0

9.0

11.0

13.0

15.0


Chicago Annual Months' Supply by Price Range 3.5 Overall

7.0 7.0

700K~UP

10.7 4.4

Price by Ranges

500K~700K

7.2 4.0

300K~500K

6.4 3.8

200K~300K

6.7 3.2

2013 Aug

100K~200K

7.0

2013 July

2.7

0 ~100K

2012 Aug

6.7 0.0

2.0

4.0

6.0

8.0

10.0

12.0


Housing Forecast

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Illinois Price Stratification 40% 2013 Aug

35%

Share of Total Sales

30%

31.7% 31.4%

32.3%

2013 July

26.7%

2012 Aug

25% 20%

18.3%

16.2%

15.1%

15%

12.5%

10% 4.6% 3.7%

5%

3.9%

3.6%

0% 0 ~100K

100K~200K

200K~300K

300K~500K

500K~700K

700K~UP


Chicago PMSA Price Stratification 40% 2013 Aug

35% 29.4% 30.0%

2013 July

30%

Share of Total Sales

26.7% 25%

2012 Aug

20.4%

20.3%

20%

18.7% 17.6% 15.8%

15% 10%

6.0% 5.0%

5%

5.1%

5.0%

0% 0 ~100K

100K~200K

200K~300K

300K~500K

500K~700K

700K~UP


Housing Forecast

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Housing Forecast

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