presented to illinois realtors€¦ · the sales forecast for october, november and december 2016...

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

Housing Price Forecasts

Illinois and Chicago PMSA, October 2016

Presented To Illinois Realtors®

From

R E A L

Regional Economics Applications Laboratory,

Institute of Government and Public Affairs University of Illinois

October 20, 2016

mailto:[email protected]

Housing Forecast October 2016 2

Housing Price Forecast: Illinois and Chicago PMSA, October 2016 The Housing Market In September, the median prices increased at a moderate year-over-year rate; sales remained at similar levels as last year but experienced seasonal monthly decreasing. 13,940 houses were sold in Illinois, a decrease of -16.6%% from a month ago and -0.6% from a year ago. In the Chicago PMSA, 9,895 houses were sold, a decline of -18.2% from a month ago and 0.1% from a year ago. The median price was $180,000 in Illinois, up 5.0% from September last year; the comparable figure for the Chicago PMSA was $218,000, up 5.1% from this time last year. In September, for the Chicago PMSA, the percentage of foreclosed sales (e.g. REOs) among the total sales was 10.4%, the lowest September reading since 2009. 8,736 regular sales were made, 2.3% more than last year. 1,095 foreclosed properties were sold, 14.9% less than last year. The median price was $229,063 for regular property sales, 3.4% more than last year; the comparable figure for the foreclosed properties was $137,194, up 14.3% from this time last year. The median sales price in September 2008 has been adjusted to 2016 values to enable calculation of the housing price recovery taking into account the effects of inflation. In Illinois, the September 2008 median sales price was $175,000 (in $2008) and $192,132 (in $2016); the current price level was 94% of the 2008 level after adjusting (103% before adjusting). In the Chicago PMSA, the September 2008 median sale price is $222,900 (in $2008) and $244,722 (in $2016); the comparable figure for price recovery in September 2016 is 89% after adjustment (98% before adjusting). Using the average annual growth rates of prices in the past months, it could take about 1.2~1.8 years (14~21 months) for Illinois and 2.1~3.1 years (25~37 months) for the Chicago PMSA to recover to the inflation-adjusted 2008 levels. The sales forecast for October, November and December 2016 suggests positive growth on a yearly basis and negative growth on a monthly basis. Annually for Illinois, the three-month average forecasts point to an increase of 6.0% to 8.1%; for the Chicago PMSA, the increase will be in the range 7.7% to 10.4%. On a monthly basis, the three-month average sales are forecast to decrease by 3.1%-4.3% for Illinois and by 2.7%-3.7% for the Chicago PMSA. On the other hand, the pending index, as a leading indicator, also indicates a positive annual growth. The pending home sales index is 148.8 (2008=100) in Illinois, up 7.0% from a year ago. In the Chicago PMSA, the comparable figure is 173.6, up 13.1% from a year ago. The median price forecast indicates moderate annual growth in both Illinois and the Chicago PMSA for October, November and December. In Illinois, the median price is forecast to rise by 4.9% in October, 4.9% in November and 4.6% in December. For the Chicago PMSA, the comparable figures are 4.4% in October, 4.3% in November and 5.0% in December. 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 4.8% in October, 7.4% in November and 5.8% in December. The comparable figures for the Chicago PMSA are 8.3% in October, 9.1% in November and 8.2% in December. REAL HPI takes housing characteristics into account and constructs comparable “baskets” of homes for each month. 1 REAL HPI was developed by Esteban Lopez and Minshu Du. Contact us for further details.


With the increasing prices, home affordability for potential homebuyers and additional credits for home owners who have already had positive equity have been discussed in the last two series of reports. This month, attention will be directed on the underwater property owners. According to ATTOM Data Solutions, a subsidiary of RealtyTrac, there are 11.9% of homes (6.7 million) nationwide that were seriously underwater in the second quarter of 2016. This is down by about a half from the peak of 12.8 million in the second quarter of 2012. However, some regions are still behind the recovery of others. Illinois (22.1%) ranked as the second state with the highest percentage of seriously underwater properties; among housing markets with more than 2 million people, Chicago (22.5%) ranked the first. It will take a while before the rising home prices can change the status of underwater homeowners in Illinois. Both consumer sentiment indices - the Conference Board Consumer Confidence Index and the University of Michigan Consumer Sentiment Index - pointed to positive directions. Surveys from both indices revealed that the optimistic sentiment arose from a positive outlook on the labor market. Furthermore, as the later survey indicated, consumers’ home buying plans depended on the low interest rate rather than the attractive pricing. Hence these sentiments may change with an expectation of an increase in interest rates by the end of this year. The Housing Market – Current Condition • In September, the median prices kept increasing at a moderate year-over-year rate; sales

remained at similar level to last year but experienced seasonal monthly decreasing. 13,940 houses were sold in Illinois, changing by -16.6%% from a month ago and -0.6% from a year ago. In the Chicago PMSA, 9,895 houses were sold, changing by -18.2% from a month ago and 0.1% from a year ago. The median price was $180,000 in Illinois, up 5.0% from September last year; the comparable figure for the Chicago PMSA was $218,000, up 5.1% from this time last year. (Reference: Illinois and Chicago PMSA Total Home Sales and Median Home Sales Price figures; Forecast for October 2016 report table)

• In September, for the Chicago PMSA, the percentage of foreclosed sales (e.g. REOs) among the total sales was 10.4%, the lowest September reading since 2009. 8,736 regular sales were made, 2.3% more than last year. 1,095 foreclosed properties were sold, 14.9% less than last year. The median price was $229,063 for regular property sales, 3.4% more than last year; the comparable figure for the foreclosed properties was $137,194, up 14.3% from this time last year.

• In September, at the latest average annual pending sales rate, Illinois had enough housing inventory for 4.7 months2 (down from 5.7 months a year ago). In the Chicago PMSA, the comparable figure was 3.6 months (down from 4.4 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)

• In September, 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 20.1% from 23.1% a year ago; the comparative figure for the Chicago

2 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.


PMSA showed a decrease to 11.3% from 14.8% 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 October, November and December. In Illinois, the median price is forecast to rise by 4.9% in October, 4.9% in November and 4.6% in December. For the Chicago PMSA, the comparable figures are 4.4% in October, 4.3% in November and 5.0% in December. (Reference: Forecast for October 2016 report table)

• As a complement to the median housing price index (HPI), the REAL HPI3 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 4.8% in October, 7.4% in November and 5.8% in December. The comparable figures for the Chicago PMSA are 8.3% in October, 9.1% in November and 8.2% in December. REAL HPI takes housing characteristics into account and constructs comparable “baskets” of homes for each month. (Reference: Housing Price Index)

• The sales forecast for October, November and December 2016 suggests positive growth on a yearly basis and negative growth on a monthly basis. Annually for Illinois, the three-month average forecasts point to an increase in the range 6.0% to 8.1%; the comparative figures for the Chicago PMSA are for increases between 7.7% and 10.4%. On a monthly basis, the three-month average sales are forecast to decrease by 3.1%-4.3% for Illinois and decrease by 2.7%-3.7% for the Chicago PMSA. (Reference: Forecast for October 2016 report table)

• The pending home sales index4 is a leading indicator based on contract signings. This September, the number of homes put under contract was greater than last year. The pending home sales index is 148.8 (2008=100) in Illinois, up 7.0% from a year ago. In the Chicago PMSA, the comparable figure is 173.6, up 13.1% from a year ago. (Reference: Illinois and Chicago PMSA Pending Home Sales Index figure)

• In September 2016, 1,916 houses were newly filed for foreclosure in the Chicago PMSA (up 22.0% and -0.6% respectively from a year and a month ago). 1,631 foreclosures were completed5 (down 3.5% and down 3.0% respectively from a year and a month ago). As of September 2016, there are 40,768 homes at some stage of foreclosure — the foreclosure inventory. The monthly average net flows of foreclosures (foreclosure inflows - outflows) were 75 in the past 6 months, 114 in the last 12 months and 25 in the last 24 months. (Reference: Chicago PMSA Foreclosure Inflows and Outflows, and Inventory figures).

The Economy • In September 2016, according to the Bureau of Labor Statistics (BLS) Employment

Situation report, the national unemployment kept little changed at 5.0% and nonfarm payroll jobs experienced gain of 156,000 jobs. The employment gains were spearheaded by professional and business services (67,000), followed by health care (33,000) and food services and drinking places (30,000).

3 REAL HPI was developed by Esteban Lopez and Minshu Du. Contact us for further details. 4 The base level (100) of pending home sales is the average pending home sales of year 2008. 5 Including cancelled foreclosures and auctions


• In August 2016, according to the Illinois Department of Employment Security (IDES) news release, the Illinois unemployment rate decreased to 5.5%. The state lost 8,200 non-farm payroll jobs and about 20,000 people gave up looking for jobs. The decreasing unemployment rate is mainly attributed to the decrease in the labor force participation rate. (not updated)

• In August 2016, the one-year-ahead forecast for Illinois indicates that the non-farm employment will increase at a rate between 0.10% and 0.23%, corresponding to job gains between 5,800 and 13,500. Four out of ten sectors are forecast with positive job growth: professional and business services (1.87%; 17,500), education and health (1.53%; 13,900), leisure and hospitality (1.95%; 11,700), and other services (0.39%; 1,000).

Longer-term Outlook • In September, two consumer sentiment indices both pointed positive directions. According

to the Conference Board Consumer Confidence Index, it increased to 104.1, the highest since the recession. The University of Michigan Consumer Sentiment Index increased to 91.2 from 89.8 last month. Both surveys revealed that the optimism arose from a positive outlook on the labor market. Furthermore, the later survey indicated consumers’ home buying plans depended on the low interest rate rather than attractive prices.

• In September, Fannie Mae Home Purchase Sentiment Index (HPSI) decreased to 82.8 from 85.0 last month. Except for the component of household income increased, all other five components decreased. Specially, the expectation on the increasing mortgage rates dragged the index most. 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 94.6 in August from 94.4 in July. The increase is attributed to the improved retail activities in the Chicago area.

“Annual sales growth in September was flat in Illinois and Chicago,” noted Geoffrey J.D. Hewings, director of the Regional Economics Applications Laboratory at the University of Illinois. “Prices, though, continued to increase and this trend is expected to prevail for the next three months. Both the Conference Board Consumer Confidence Index and the University of Michigan Consumer Sentiment Index - pointed to positive directions at the national level as a result of a positive outlook on the labor market. Unfortunately, job growth in Illinois has been way below the national level, dampening housing sales. ”


Forecast for October 2016 report


Median Prices and Recovery

Illinois Chicago PMSA

[$2008] [$2016] [$2008] [$2016] September 2008 Median Price $175,000 $192,132 $222,900 $244,722 September 2016 Median Price $163,949 $180,000 $198,561 $218,000

Price Ratio (September 16/September 08)

Adjusted 0.94 Adjusted 0.89 Unadjusted 1.03 Unadjusted 0.98

Recovery Forecasts using Annually Growth Rates

Illinois Chicago PMSA Annual

Recovery Rate* Years to

Recover** Recovery Rate Years to Recover

Current Month 3.7% 1.8 3.8% 3.1 Past 3 months 4.1% 1.6 4.0% 2.9 Past 6 months 5.2% 1.3 4.9% 2.4 Past 9 months 5.4% 1.2 5.1% 2.3 Past 12 months 5.6% 1.2 5.7% 2.1

*Annual recovery rate is the average of annual change rates in past months ** Years to recover is calculated using the following formula: PriceSeptember2016*(1+recovery rate)^years=PriceSeptember2008. 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.

presented to illinois realtors€¦ · the sales forecast for october, november and december 2016...

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