housing price forecasts illinois and chicago pmsa, august ...housing forecast august 2016 2 housing...
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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
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.
Housing Forecast August 2016 3
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.
Housing Forecast August 2016 4
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
Housing Forecast August 2016 5
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.”
Housing Forecast August 2016 6
Forecast for August 2016
report
Housing Forecast August 2016 7
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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