Housing Price Forecasts Illinois and Chicago PMSA, November ...

Housing Price Forecasts Illinois and Chicago PMSA, November 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

November 20, 2013

Contact:

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

Housing Forecast

November 2013

2

Housing Price Forecast: Illinois and Chicago PMSA, November 2013 The Housing Market As a strong response to Government shutdown in October, sales only experienced mild gains compared with last year, while median prices are still increasing with robust annual growth rates. 12,349 houses were sold in Illinois, 3.8% more than a year ago. In the Chicago PMSA, 9,303 houses were sold, 9.6% more than last October. The median price was $153,000 in Illinois, up 14.2% from October last year. Comparable figures for the Chicago PMSA were $175,000 with an annual increase of 14.7%. However, the sales in November are forecast to recover the pace of gains experineced before the October government shutdown. The sales forecast for November, December 2013 and January 2014 together suggests a three-month average forecast of between 18.5% and 25.1% for Illinois and 22.7% to 30.7% for Chicago PMSA on a year-over-year basis. As for the price forecast, continuing robust annual increases are anticipated for median prices in November, December and January. In Illinois, the median price is forecast to rise by 13.2% in November, 13.2% in December this year and 16.6% in January 2014. For the Chicago PMSA, the comparable figures are 14.2% in November, 14.5% in December and 17.5% in January. The milder growth of sales in October was expected, although the degree of declines turned out to be more than was forecast in September. The annual growth rates for sales are lowest recorded since July 2011. Consumers’ confidence can best explain this change. Two consumer confidence indices both revealed negative impacts of the shutdown on consumer confidence in October. The Conference Board Consumer Confidence Index decreased sharply by 11.2% to 71.2 (1985=100) on a monthly basis with the major decrease induced by the Expectation Index rather than Present Situation Index component of this index. The University of Michigan Consumer Sentiment Index decreased by 5.5% to 73.2 from 77.5 in September, which is the lowest level since the fiscal cliff crisis in late 2012. In response to the agreement negotiated in the second half of October, however, large pending sales were catching up and thus suggesting a return to the prior growth pace in sales. As the pending home sales index revealed, homes put under contract in October increased both on a monthly and yearly basis. The pending home sales index is 136.2 (2008=100) in Illinois, up 4.0% from last month and 3.7% from a year ago. In the Chicago PMSA, the comparable figure is 163.4, up 7.4% from last month and 11.0% from a year ago. Due to the latest average annual pending sales rate, Illinois had enough housing inventory for 5.1 months 1 (down from 7.5 months a year ago). In the Chicago PMSA, the comparable figure was 3.4 months (down from 6.1 months a year ago). The continuing increase in the median prices is a direct result of less cheaper homes sold and listed for sale. In October, homes sold below $100K and in the range of $100K-200K both held a smaller market share compared to a year ago, while homes at all other higher price ranges 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.

Housing Forecast

November 2013

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experienced increases in market shares. For Illinois, homes priced below $200K held a market share that decreased to 62.5% from 68.7% a year ago. The comparable figure for the Chicago PMSA was 55.2%, a sharper decrease from the 62.5% share last October. Meanwhile, the months of supply for homes priced below $100K in the Chicago PMSA is only 2.8 months, 55% less than a year ago; the comparative figures for homes between $100K and $200K are 3.1 months and 49% less on a yearly basis. The decreasing numbers of both sales and listings for sale at the low market end are contributing higher median prices. To explain the decline of the share of these properties, the best scenario would suggest an increase in the real property values, indicating a more stable and sustained housing market recovery. However, there is still some concern that this contribution might be offset by the addition of foreclosed properties that are usually offered for sale at a discounted price. Hence, before the foreclosure inventory reverts to the pre-recession levels, caution is still needed when forecasting the rate of change in median housing prices. REAL projects a recovery schedule of foreclosure inventory using past change rates 2 of the foreclosure inventory.3 Given the average monthly change rates of the last 6 months (-7.6%), 12 months (5.1%) and 24 months (-2.8%), the foreclosure inventory would return to the pre-bubble levels by November 2014, July 2015 and December 2016. This projects a faster recovery than the projection from last month. The market is full of opposing factors inducing uncertainties in the economy. The government assets purchase program is continuing while the mortgage interest rate is increasing; the holiday season spending boost is on the way while another government negotiation is also ahead; unemployment rate is 0.6% lower than the beginning of this year while non-farm employment growth has slowed down. According to the forecasts, overall, the housing market looks promising both in sales and median prices in the next few months. The Housing Market – Current Condition 



2

In October, both Illinois and the Chicago PMSA experienced little gains in sales but still robust gains in median prices on a yearly base. 12,349 houses were sold in Illinois, 3.8% more than a year ago. In the Chicago PMSA, 9,303 houses were sold, 9.6% more than last October. The median price was $153,000 in Illinois, up 14.2% from October last year. Comparable figures for the Chicago PMSA were $175,000 with an annual increase rate of 14.7%. (Reference: Illinois and Chicago PMSA Total Home Sales and Median Home Sales Price figures; Forecast for October 2013 report table) In October, at the latest average annual pending sales rate, Illinois had enough housing inventory for 5.1 months4 (down from 7.5 months a year ago). In the Chicago PMSA, the comparable figure was 3.4 months (down from 6.1 months a year ago). While homes at all price ranges in Illinois have experienced a decline in their months’ supply by 20%-

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. 3 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. 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



November 2013

4

35%, homes in the Chicago PMSA have a months’ supply that has decreased by 30%55%. Most outstandingly, homes priced below $100K in the Chicago PMSA only have 2.8 months of supply. (Reference: Illinois and Chicago PMSA Annual Months’ Supply by Price Range figures) In October, homes priced below $100K and in the range of $100K-200K both hold 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 $200K held a market share that decreased to 62.5% from 68.7% a year ago. The comparable figure for the Chicago PMSA was 55.2%, a sharp decrease from 62.5% in last October. (Reference: Illinois and Chicago PMSA Price Stratification figures)

The Housing Market – Forecast and Future Condition  The price forecast indicates continuing robust annual increases in median prices for November, December and January. In Illinois, the median price is forecast to rise by 13.2% in November, 13.2% in December this year and 16.6% in January 2014. For the Chicago PMSA, the comparable figures are 14.2% in November, 14.5% in December and 17.5% in January (Reference: Forecast for November 2013 report table)  The sales forecast for November, December 2013 and January 2014 suggests a recovery from the declines in annual growth rates in October. On a year-over-year basis, the three-month average forecasts point to increases of 18.5% to 25.1% for Illinois and 22.7% to 30.7% for Chicago PMSA. (Reference: Forecast for November 2013 report table)  The pending home sales index5 is a leading indicator based on contract signings. This October, homes put under contract increased on both a monthly and yearly basis. The pending home sales index is 136.2 (2008=100) in Illinois, up 4.0% from last month and 3.7% from a year ago. In the Chicago PMSA, the comparable figure is 163.4, up 7.4% from last month and 11.0% from a year ago. (Reference: Illinois and Chicago PMSA Pending Home Sales Index figure)  In October 2013, 3,892 houses were newly filed for foreclosures in the Chicago PMSA (down 17.8% from a year ago) and 5,277 foreclosures were closed6 (up 45.2% from a year ago). The average inventory change rates were -7.6% in the past 6 months, -5.1% in the last 12 months and -2.8% in the last 24 months. Given these change rates, the foreclosure inventory would return to the pre-bubble levels by November 2014, July 2015 and December 2016. (Reference: Chicago PMSA Foreclosure Activity and Inventory figures). The Economy 

5 6

In October 2013, according to the Bureau of Labor Statistics (BLS) Employment Situation report, the national unemployment rate is unchanged at 7.3% down about 0.6% from the beginning of 2013. The number of nonfarm payroll jobs experienced a gain of 204,000. As was the case last month, the largest job creation was led by leisure and hospitality (+29,000), retail trade (+44,000), followed by professional and technical services (+21,000). Among housing-market related sectors, real estate and rental and

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

November 2013

5

leasing (+3,000) and residential building construction (+4,500) both created additional jobs, while employment in the sector of residential specialty trade contractors barely changed (+300). Longer-term Outlook 

Two consumer confidence indices both revealed negative impacts of the shutdown on consumer confidence in October. The Conference Board Consumer Confidence Index decreased sharply by 11.2% to 71.2 (1985=100) on a monthly basis with the major decrease induced by the Expectation Index rather than Present Situation Index component of this index. The University of Michigan Consumer Sentiment Index decreased by 5.5% to 73.2 from 77.5 in September, the lowest level since the fiscal cliff crisis in late 2012.

“While the partial government shutdown has certainly had a profound negative effect on the housing market’s continuing recovery,” noted Geoffrey J.D. Hewings, Director of the Regional Economics Applications Laboratory of the University of Illinois, “sales and prices are forecast to return to more robust growth rates over the next three months. The declines in consumer sentiment suggest that a longer-term resolution to the government fiscal tensions would provide conditions that would significantly help the housing market.”

Housing Forecast

November 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

November 2013

7

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

Monthly

Illinois

Chicago PMSA

Illinois

Chicago PMSA

Jul-13

30.1%

37.9%

3.9%

6.2%

Aug-13

18.8%

25.9%

-1.3%

-1.2%

Sep-13

19.8%

25.6%

-18.7%

-19.6%

22.9%

29.9%

3.3%

5.4%

3 Month Avg.

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

Monthly

Chicago PMSA

Illinois

Chicago PMSA

Oct-13

9.6%

13.0%

13.1%

17.7%

1.8%

2.5%

1.9%

2.6%

Nov-13

11.6%

15.7%

14.9%

20.1%

-6.4%

-8.6%

-6.1%

-8.2%

Dec-13

10.9%

14.8%

14.5%

19.7%

-3.5%

-4.7%

-2.8%

-3.8%

10.7%

14.5%

14.1%

19.1%

-14.8%

-20.0%

-14.9%

-20.1%

3 Month Avg.

SUMMARY OF THE FORECAST FOR THE MEDIAN PRICE Illinois

Chicago PMSA

Illinois

Chicago PMSA

Jul-13

$168,950

$200,000

Jul-12

$147,500

$170,000

Aug-13

$166,000

$197,000

Aug-12

$147,000

$170,000

Sep-13

$157,000

$185,000

Sep-12

$139,000

$160,000

Oct-13

$150,997

$175,541

Oct-12

$134,000

$152,538

Nov-13

$150,573

$177,442

Nov-12

$135,000

$155,000

Dec-13

$146,869

$172,377

Dec-12

$131,000

$150,000

ANNUAL PERCENTAGE CHANGE OF THE MEDIAN PRICE Illinois

Chicago PMSA

Illinois

Chicago PMSA

Jul-13

14.5%

17.6%

Jul-12

-2.3%

-6.0%

Aug-13

12.9%

15.9%

Aug-12

-0.7%

-2.9%

Sep-13

12.9%

15.6%

Sep-12

1.8%

0.0%

Oct-13

12.7%

15.1%

Oct-12

3.2%

2.4%

Nov-13

11.5%

14.5%

Nov-12

5.1%

3.4%

Dec-13

12.1%

14.9%

Dec-12

4.8%

3.4%

Housing Forecast

November 2013

8

Illinois Median Home Sales Price

2011

$180,000

2012 2013

Median Sales Price

$170,000

$167,000

$160,000 $150,000

$153,000

$151,500

$145,742

Forecast $152,756

$146,000

$149,444

$140,000 $130,000

$125,000 $125,500

$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

2012

16,161 16,000 14,000

Total Sales

15,973

15,314

2013

13,089

12,783

12,349

12,000 10,000 8,000

10,396 8,502

8,360

6,484

6,000 5,620 4,000 Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec


Housing Forecast

November 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 $170,000

$171,773

$175,000

$164,565

$177,041

$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

12,075 12,000

11,367

9,698

10,000

Total Sales

2013

11,936

11,167

9,303

9,309 8,070

8,000 6,350 6,000

6,069

4,564 4,000 2,000 Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec


20 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

Housing Forecast November 2013

IL Pending Index

10

Pending Home Sales Index

260

220

180

140

100

60

Chicago Pending Index


Housing Forecast

November 2013

11

Illnois Annual Months' Supply by Price Range 5.1

Overall

7.5 8.6

700K~UP

12.0 5.5

Price by Ranges

500K~700K

8.4 5.2

300K~500K

7.1 5.1

200K~300K

7.2 4.8

100K~200K

2013 Oct

7.4

2013 Sept

4.9

0 ~100K -1.0

2012 Oct

7.5 1.0

3.0

5.0

7.0

9.0

11.0

13.0

15.0


Chicago Annual Months' Supply by Price Range 3.4 Overall

6.1 6.6

700K~UP

9.6 4.1

Price by Ranges

500K~700K

6.3 3.8

300K~500K

5.5 3.6

200K~300K

5.9 3.1

2013 Oct

100K~200K

6.1

2013 Sept

2.8

0 ~100K

2012 Oct

6.1 0.0

2.0

4.0

6.0

8.0

10.0

12.0


Housing Forecast

November 2013

12

Illinois Price Stratification 40% 35%

35.1% 32.1%

30.4%

2013 Oct

33.6%

2013 Sept

Share of Total Sales

30%

2012 Oct

25% 20%

17.8% 15.1%

15%

12.5% 10.6%

10% 3.9% 5%

3.1%

3.2% 2.5%

0% 0 ~100K

100K~200K

200K~300K

300K~500K

500K~700K

700K~UP


Chicago PMSA Price Stratification 40% 35%

2013 Oct

31.0% 32.8%

2013 Sept

29.7%

30%

2012 Oct

Share of Total Sales

24.2% 25% 20.2% 20%

16.8%

15%

15.3% 13.2%

10% 5.1% 4.2%

5%

4.2%

3.4%

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 November 2013 13

10000

Chicago PMSA New Foreclosure Filings and Foreclosure Sales

9000 New foreclosure filings

8000 Foreclosure Sales

7000

6000

5000

4000

3000

2000

1000

0

Chicago PMSA Foreclosure Inventory and Pre-bubble Level

100000

Foreclosure Inventory

Average Inventory 1997-2005

80000

70000

60000

50000

40000

30000

20000

10000

0

Housing Forecast

November 2013

14

Chicago PMSA Foreclosure Inventory Recover Schedule 100000

November, 2014 90000

July, 2015 80000 70000

December 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