Housing Price Forecasts Illinois and Chicago PMSA, August ...Housing Forecast August 2016 2 Housing...

Contact: Geoffrey Hewings 217-333-4740 ([email protected])

Xian Fang 217-244-7226 ([email protected])

Housing Price Forecasts

Illinois and Chicago PMSA, August 2016

Presented To Illinois Association of Realtors

From

R E A L

Regional Economics Applications Laboratory,

Institute of Government and Public Affairs

University of Illinois

August 24, 2016

mailto:[email protected]

Housing Forecast August 2016 2

Housing Price Forecast: Illinois and Chicago PMSA, August 2016

The Housing Market

In July, median prices continue to experience positive growth while sales experienced the first

negative annual change in 2016. 16,108 houses were sold in Illinois, down 14.9% from a month

ago and down by 6.8% from a year ago. In the Chicago PMSA, 11,716 houses were sold, down

15.5% from a month ago and down 7.3% from a year ago. The median price was $199,000 in

Illinois, up 4.7% from July last year; the comparable figure for the Chicago PMSA was

$238,000, up 5.8% from this time last year.

In July, for the Chicago PMSA, the percentage of foreclosed sales (e.g. REOs) among the total

sales was 9.7%, the lowest July reading since 2009. 10,509 regular sales were made, 6.5% less

than last year. 1,132 foreclosed properties were sold, 15.1% less than last year. The median

price was $250,000 for regular property sales, 0.8% more than last year; the comparable figure

for the foreclosed properties was $149,450, up 15.0% from this time last year.

Sale prices in July 2008 have been adjusted to 2016 values to enable calculation of the housing

price recovery taking into account the effects of inflation. In Illinois, the July 2008 median sale

price was $195,450 (in $2008) and $214,023 (in $2016); the current price level was 93% of the

2008 level after adjusting (102% before adjusting). In the Chicago PMSA, the July 2008

median sale price is $254,925 (in $2008) and $279,149 (in $2016); the comparable figure for

price recovery in July 2016 is 85% after adjustment (93% before adjusting). According to

average annual growth rates of prices in the past months, it could take about 1.3~1.9 years

(15~23 months) for Illinois and 2.8~3.7 years (33~45 months) for the Chicago PMSA to recover

to the 2008 levels.

The sales forecast for August, September and October 2016 suggests negative growth both on a

yearly basis and a monthly basis. Annually for Illinois, the three-month average forecasts point

to decrease by 3.8% to 5.1%; the comparative figures for the Chicago PMSA will be a decrease

by 3.4% to 4.7%. On a monthly basis, the three-month average sales are forecast to decrease by

6.6%-9.0% for Illinois and decrease by 7.3%-9.9% for the Chicago PMSA. On the other hand,

the pending index, as a leading indicator, indicates a positive annual growth and negative

monthly growth in sales. The pending home sales index is 176.4 (2008=100) in Illinois, down

5.8% from last month and up 5.0% from a year ago. In the Chicago PMSA, the comparable

figure is 207.0, down 5.2% from a month ago and up 9.7% from a year ago.

The median price forecast indicates moderate annual growth in both Illinois and the Chicago

PMSA for August, September and October. In Illinois, the median price is forecast to rise by

7.5% in August, 6.9% in September and 6.9% in October. For the Chicago PMSA, the

comparable figures are 6.5% in August, 4.7% in September and 4.0% in October. As a

complement to the median housing price index (HPI), the REAL HPI1 forecasts similar growth

trend for Illinois but stronger growth for the Chicago PMSA. In Illinois, the REAL HPI (Jan

2008=1) is forecast to rise by 7.7% in August, 6.6% in September and 5.8% in October. The

comparable figures for the Chicago PMSA are 9.8% in August, 11.1% in September and 11.8%

1 REAL HPI was developed by Esteban Lopez and Minshu Du. Contact us for further details.


in October. REAL HPI takes housing characteristics into account and constructs comparable

“baskets” of homes for each month.

In July 2016, 1,546 houses were newly filed for foreclosure in the Chicago PMSA (down 11.0%

and 4.9% respectively from a year and a month ago). 1,786 foreclosures were completed2 (up

0.85% and down 7.1% respectively from a year and a month ago). As of July 2016, there are

39,672 homes at some stage of foreclosure — the foreclosure inventory. The monthly average

net flows of foreclosures (foreclosure inflows - outflows) were 60 in the past 6 months, 22 in the

last 12 months and -52 in the last 24 months.

As the house prices climbs, housing affordability has returned to be a potential concern. While

only 2 percent of the US housing markets were not affordable as in the first quarter of 2015, the

comparable figure has risen to 9 percent as in the first quarter of 2016. This is according to the

RealtyTrac comparing the housing affordability to the historic norms as in the first quarter of

2005. However, according to the RealtyTrac, Illinois counties have been ranked among the

most affordable counties in the first quarter of 2016. Cook County ranked the second among

most-populated counties nationwide and with more affordable housing compared to its historic

norms. Rock Island County in the Davenport-Moline-Rock Island metro area, comparing with

peer counties in 2016 Q1, is the fifth most affordable county across the country using the

criterion that a buyer needs to pay 12.3% of average wages to buy a median priced home in an

area.

The Housing Market – Current Condition

In July, median prices continue to experience positive growth while sales declined both

monthly and annually. 16,108 houses were sold in Illinois, down 14.9% from a month ago

and down by 6.8% from a year ago. In the Chicago PMSA, 11,716 houses were sold, down

15.5% from a month ago and down 7.3% from a year ago. The median price was $199,000

in Illinois, up 4.7% from July last year; the comparable figure for the Chicago PMSA was

$238,000, up 5.8% from this time last year. (Reference: Illinois and Chicago PMSA Total

Home Sales and Median Home Sales Price figures; Forecast for August 2016 report table)

In July, for the Chicago PMSA, the percentage of foreclosed sales (e.g. REOs) among the

total sales was 9.7%, the lowest July reading since 2009. 10,509 regular sales were made,

6.5% less than last year. 1,132 foreclosed properties were sold, 15.1% less than last year.

The median price was $250,000 for regular property sales, 0.8% more than last year; the

comparable figure for the foreclosed properties was $149,450, up 15.0% from this time last

year.

In July, at the latest average annual pending sales rate, Illinois had enough housing

inventory for 4.8 months3 (down from 5.9 months a year ago). In the Chicago PMSA, the

comparable figure was 3.6 months (down from 4.6 months a year ago). Months of supply

for homes in all price ranges but “Above $700K” experienced declines both in Illinois and

the Chicago PMSA. (Reference: Illinois and Chicago PMSA Annual Months’ Supply by

Price Range figures)

2 Including cancelled foreclosures and auctions

3 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.


In July, the market shares of homes priced at the low end (<$100K) experienced the largest

change compared to a year ago. In Illinois, the market share for homes less than $100K

decreased to 17.6% from 32.0% a year ago; the comparative figure for the Chicago PMSA

showed a decrease to 9.3% from 12.1% a year ago. (Reference: Illinois and Chicago PMSA

Price Stratification figures)

The Housing Market – Forecast and Future Condition

The median price forecast indicates moderate annual growth in both Illinois and the Chicago

PMSA for August, September and October. In Illinois, the median price is forecast to rise

by 7.5% in August, 6.9% in September and 6.9% in October. For the Chicago PMSA, the

comparable figures are 6.5% in August, 4.7% in September and 4.0% in October.

(Reference: Forecast for August 2016 report table)

As a complement to the median housing price index (HPI), the REAL HPI4 forecasts similar

growth trend for Illinois but stronger growth for the Chicago PMSA. In Illinois, the REAL

HPI (Jan 2008=1) is forecast to rise by 7.7% in August, 6.6% in September and 5.8% in

October. The comparable figures for the Chicago PMSA are 9.8% in August, 11.1% in

September and 11.8% in October. REAL HPI takes housing characteristics into account and

constructs comparable “baskets” of homes for each month. (Reference: Housing Price Index)

The sales forecast for August, September and October 2016 suggests negative growth both

on a yearly basis and a monthly basis. Annually for Illinois, the three-month average

forecasts point to decrease by 3.8% to 5.1%; the comparative figures for the Chicago PMSA

will be a decrease by 3.4% to 4.7%. On a monthly basis, the three-month average sales are

forecast to decrease by 6.6%-9.0% for Illinois and decrease by 7.3%-9.9% for the Chicago

PMSA. (Reference: Forecast for August 2016 report table)

The pending home sales index5 is a leading indicator based on contract signings. This July,

the number of homes put under contract was greater than last year but less than the previous

month. The pending home sales index is 176.4 (2008=100) in Illinois, down 5.8% from last

month and up 5.0% from a year ago. In the Chicago PMSA, the comparable figure is 207.0,

down 5.2% from a month ago and up 9.7% from a year ago. (Reference: Illinois and

Chicago PMSA Pending Home Sales Index figure)

In July 2016, 1,546 houses were newly filed for foreclosure in the Chicago PMSA (down

11.0% and 4.9% respectively from a year and a month ago). 1,786 foreclosures were

completed6 (up 0.85% and down 7.1% respectively from a year and a month ago). As of

July 2016, there are 39,672 homes at some stage of foreclosure — the foreclosure inventory.

The monthly average net flows of foreclosures (foreclosure inflows - outflows) were 60 in

the past 6 months, 22 in the last 12 months and -52 in the last 24 months. (Reference:

Chicago PMSA Foreclosure Inflows and Outflows, and Inventory figures).

The Economy

In July 2016, according to the Bureau of Labor Statistics (BLS) Employment Situation

report, the national unemployment rate was little changed at 4.9% and nonfarm payroll jobs

4 REAL HPI was developed by Esteban Lopez and Minshu Du. Contact us for further details.

5 The base level (100) of pending home sales is the average pending home sales of year 2008.

6 Including cancelled foreclosures and auctions


experienced gain of 255,000 jobs. The employment growth was led by professional and

business services (70,000), followed by health care (43,000) and financial activities (18,000).

In July 2016, according to the Illinois Department of Employment Security (IDES) news

release, the Illinois unemployment rate decreased to 5.8% and 11,600 non-farm payroll jobs

were added. Though the number of unemployed workers (-6.4%) decreased, the decreasing

unemployment rate can be primarily traced to the decrease in the labor force (-0.5%).

In June 2016, the one-year-ahead forecast for Illinois indicates that the non-farm

employment will increase at a rate between 0.19% and 0.45%, corresponding to job gains

between 11,400 and 27,300. Six out of ten sectors are forecast with positive job growth:

construction (0.51%; 1,100), financial activities (0.84%; 3,200), professional and business

services (3.21%; 29,900), education and health (0.3%; 2,700), leisure and hospitality (1.1%;

6,500), and other services (0.16%; 400).

Longer-term Outlook

In July, one consumer sentiment index remained unchanged while the other decreased.

According to The Conference Board Consumer Confidence Index, it was little changed and

stands at 97.3. The University of Michigan Consumer Sentiment Index decreased to 90.0

from 93.5 last month; according to their survey, consumers’ pessimism was related to the

uncertainties about the global economy and the presidential election.

In July, Fannie Mae Home Purchase Sentiment Index (HPSI) increased to 86.5 from 83.2.

All six components of HPSI increased and indicated a positive look on the housing market

activities, including “Good time to buy”, “Good time to sell”, “Home prices will go up”,

“Mortgage rates will go down”, “confidence about not losing job” and “household income is

significant higher”. This index uses information from their National Housing Survey

collecting consumers’ feeling and opinions on home purchasing, directions and conditions

of the housing market, finance conditions and the job market.

The Chicago Business Activity Index (CBAI) slightly increased to 93.7 in June from 93.6 in

May. The increase is attributed to the job growth in the construction sector and to the

improved retail activities in the Chicago area

“In July, median prices continued to experience positive growth while sales recorded their first

negative annual change in 2016,” said Geoffrey J.D. Hewings, director of the Regional

Economics Applications Laboratory at the University of Illinois. “However, median prices are

forecast to have positive annual growth over the next three months. In addition, the percentage

of foreclosed sales among total sales was 9.7%, the lowest July reading since 2009.”


Forecast for August 2016

report


Median Prices and Recovery

Illinois Chicago PMSA

[$2008] [$2016] [$2008] [$2016]

July 2008 Median Price $195,450 $214,023 $254,925 $279,149

July 2016 Median Price $181,731 $199,000 $217,347 $238,000

Price Ratio

(July 16/July 08)

Adjusted 0.93 Adjusted 0.85

Unadjusted 1.02 Unadjusted 0.93

Recovery Forecasts using Annually Growth Rates

Illinois Chicago PMSA

Annual

Recovery Rate*

Years to

Recover** Recovery Rate

Years to

Recover

Current Month 3.8% 1.9 4.9% 3.4

Past 3 months 4.7% 1.6 4.4% 3.7

Past 6 months 5.5% 1.4 5.3% 3.1

Past 9 months 5.9% 1.3 5.9% 2.8

Past 12 months 5.6% 1.3 5.8% 2.8

*Annual recovery rate is the average of annual change rates in past months

** Years to recover is calculated using the following formula:

PriceJuly2016*(1+recovery rate)^years=PriceJuly2008. Prices used in the formula are inflation

adjusted. The recovery rate is applied as a constant annual change rate to recoup the differences

between the current month and its corresponding month in 2008.

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