Housing Price Forecasts Illinois and Chicago PMSA, January 2019 Presented To Illinois Realtors From R E A L Regional Economics Applications Laboratory, Institute of Government and Public Affairs University of Illinois January 22, 2019 Contact: Geoffrey Hewings 217-333-4740 (hewings@illinois.edu) Jiyoung Chae 217-244-7226 (jchae3@illinois.edu)
Housing Forecast January 2019 2 Housing Price Forecast: Illinois and Chicago PMSA, January 2019 The Housing Market In December, median prices continued to experience positive growth while sales experienced a negative annual change in Illinois. For the Chicago PMSA, the median price remained the same as the previous year while sales experienced a negative annual change. 9,968 houses were sold in Illinois, changing by -15.7% from a month ago and -14.7% from a year ago. In the Chicago PMSA, 6,865 houses were sold, declining by -16.0% from a month ago and -16.5% from a year ago. The median price was $185,500 in Illinois, up 0.3% from December last year; the comparable figure for the Chicago PMSA was $225,000, remaining the same as the last year. In December, for the Chicago PMSA, the percentage of foreclosed sales (e.g. REOs) among the total sales was 9.8%. 6,054 regular sales were made, 16.2% less than last year. 750 foreclosed properties were sold, 19.2% less than last year. The median price was $234,700 for regular property sales, 0.1% higher than last year; the comparable figure for the foreclosed properties was $165,000, up 2.2% from this time last year. Illinois and Chicago PMSA both have already recovered to their pre-bubble levels on average. The median sales price in December 2008 has been adjusted to 2018 values to enable calculation of the housing price recovery considering the effects of inflation. In Illinois, the December 2008 median sales price was $150,650 (in $2008) and $175,177 (in $2018); the current price level was 106% of the 2008 level after adjusting (123% before adjusting). In the Chicago PMSA, the December 2008 median sales price was $180,125 (in $2008) and $209,451 (in $2018); the comparable figure for price recovery in December 2018 is 107% after adjustment (125% before adjusting). The sales forecast for January, February and March suggests a decrease on a yearly basis and an increase on a monthly basis for both Illinois and the Chicago PMSA. Annually for Illinois, the three-month average forecasts point to a decrease in the range -3.6% to -4.9%; the comparative figures for the Chicago PMSA are a decrease in the range -4.6% to -6.2%. On a monthly basis, the three-month average sales are forecast to increase in the range 7.7% to 10.4% for Illinois and increase in the range 7.5% to 10.2% for the Chicago PMSA. The pending home sales index 1 is a leading indicator based on contract signings. This December, the number of homes put under contract was the same as the last year in Illinois and higher in the Chicago PMSA. The pending home sales index is 95.1 (2008=100) in Illinois, same as a year ago. In the Chicago PMSA, the comparable figure is 106.2, up 1.8% from a year ago. At the latest average annual pending sales rate, Illinois had enough housing inventory for 3.5 months 2 (same as a year ago). In the Chicago PMSA, the comparable figure was 2.6 months (same as a year ago). Months of supply for homes in the lowest price ranges (<100K) experienced declines both in Illinois and the Chicago PMSA. The median price forecast indicates mixed annual growth for January, February, and March in both Illinois and the Chicago PMSA. In Illinois, the median price is forecast to change by -0.3% in January -0.8% in February and 1.0% in March. For the Chicago PMSA, the comparable figures are 0.3% in January -1.2% in February and 0.6% in March. As a complement to the median 1 The base level (100) of pending home sales is the average pending home sales of year 2008. 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.
Housing Forecast January 2019 3 housing price index (HPI), the REAL HPI 3 forecasts a mild positive growth trend for Illinois and a negative growth trend for the Chicago PMSA. In Illinois, the REAL HPI (Jan 2008=1) is forecast to change by 0.9% in January 0.7% in February and 0.0% in March. The comparable figures for the Chicago PMSA are -1.4% in January -2.4% in February and -3.4% in March. REAL HPI takes housing characteristics into account and constructs comparable baskets of homes for each month. In December, the Conference Board Consumer Confidence Index decreased while the University of Michigan Consumer Sentiment Index increased. The Conference Board Consumer Confidence Index survey reported that consumers assessment of current conditions declined slightly and consumers outlook for the labor market was also less favorable. The University of Michigan Consumer Sentiment Index survey reported that consumer sentiment remained at the same favorable levels in the December survey as it has recorded throughout the year and the strength was due to gains in current economic conditions. The more housing specific sentiment index, the Fannie Mae Home Purchase Sentiment Index (HPSI) declined. The survey noted that consumer attitudes regarding whether it's a good time to buy a home worsened significantly in the last month, as well as from a year ago, to a survey low. Meanwhile, consumers' views on the direction of the economy, a key support for housing market sentiment of late, has softened somewhat from its October high. The Housing Market Current Condition In December, median prices continued to experience positive growth while sales experienced a negative annual change in Illinois. For the Chicago PMSA, median price remained the same as the previous year while sales experienced a negative annual change. 9,968 houses were sold in Illinois, changing by -15.7% from a month ago and -14.7% from a year ago. In the Chicago PMSA, 6,865 houses were sold, changing by -16.0% from a month ago and -16.5% from a year ago. The median price was $185,500 in Illinois, up 0.3% from December last year; the comparable figure for the Chicago PMSA was $225,000, remaining the same as the last year. (Reference: Illinois and Chicago PMSA Total Home Sales and Median Home Sales Price figures; Forecast for January 2019 report table) In December, for the Chicago PMSA, the percentage of foreclosed sales (e.g. REOs) among the total sales was 9.8%. 6,054 regular sales were made, 16.2% less than last year. 750 foreclosed properties were sold, 19.2% less than last year. The median price was $234,700 for regular property sales, 0.1% higher than last year; the comparable figure for the foreclosed properties was $165,000, up 2.2% from this time last year. (Reference: Ratio of Foreclosed Sales over Total Sales, Sales & Median Prices: Foreclosed vs. Regular figures) In December, at the latest average annual pending sales rate, Illinois had enough housing inventory for 3.5 months 4 (same as a year ago). In the Chicago PMSA, the comparable figure was 2.6 months (same as a year ago). Months of supply for homes in the lowest price ranges (<100K) experienced declines both in Illinois and the Chicago PMSA. (Reference: Illinois and Chicago PMSA Annual Months Supply by Price Range figures) In December, the market shares of homes at all price ranges experienced small changes compared to a year ago. In Illinois, the market share for homes less than $100K decreased to 20.2% from 20.5% a year ago; the comparative figure for the Chicago PMSA showed a slight 3 REAL HPI was developed by Esteban Lopez and Minshu Du. Contact us for further details. 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 January 2019 4 increase to 10.1% from 9.9% a year ago. (Reference: Illinois and Chicago PMSA Price Stratification figures) The Housing Market Forecast and Future Condition The median price forecast indicates mixed annual growth for January, February, and March in both Illinois and the Chicago PMSA. In Illinois, the median price is forecast to change by -0.3% in January -0.8% in February and 1.0% in March. For the Chicago PMSA, the comparable figures are 0.3% in January -1.2% in February and 0.6% in March. (Reference: Forecast for January 2019 report table) As a complement to the median housing price index (HPI), the REAL HPI 5 forecasts a mild positive growth trend for Illinois and a negative growth trend for the Chicago PMSA. In Illinois, the REAL HPI (Jan 2008=1) is forecast to change by 0.9% in January 0.7% in February and 0.0% in March. The comparable figures for the Chicago PMSA are -1.4% in January -2.4% in February and -3.4% in March. REAL HPI takes housing characteristics into account and constructs comparable baskets of homes for each month. (Reference: Housing Price Index) The sales forecast for January, February and March suggests a decrease on a yearly basis and an increase on a monthly basis for both Illinois and the Chicago PMSA. Annually for Illinois, the three-month average forecasts point to a decrease in the range -3.6% to -4.9%; the comparative figures for the Chicago PMSA are a decrease in the range -4.6% to -6.2%. On a monthly basis, the three-month average sales are forecast to increase in the range 7.7% to 10.4% for Illinois and increase in the range 7.5% to 10.2% for the Chicago PMSA. (Reference: Forecast for January 2019 report table) The pending home sales index 6 is a leading indicator based on contract signings. This December, the number of homes put under contract was the same as the last year in Illinois and higher in the Chicago PMSA. The pending home sales index is 95.1 (2008=100) in Illinois, same as a year ago. In the Chicago PMSA, the comparable figure is 106.2, up 1.8% from a year ago. (Reference: Illinois and Chicago PMSA Pending Home Sales Index figure) In December 2018, 1,313 houses were newly filed for foreclosure in the Chicago PMSA (down 16.6% and down 4.2% respectively from a year and a month ago). 839 foreclosures were completed 7 (down 10.6% and down 28.9% respectively from a year and a month ago). As of December 2018, there are 31,211 homes at some stage of foreclosure the foreclosure inventory. The monthly average net flows of foreclosures (foreclosure inflows - outflows) were 368.7 in the past 6 months, 407.8 in the last 12 months and 504.5 in the last 24 months. (Reference: Chicago PMSA Foreclosure Inflows and Outflows, and Inventory figures). The Economy In December 2018, according to the Bureau of Labor Statistics (BLS) Employment Situation report, the national unemployment rate rose to 3.9% and nonfarm payroll jobs experienced a gain of 312,000 jobs. Employment increased in health care (+50,000), food services and drinking places (+41,000), and construction (+38,000). 5 REAL HPI was developed by Esteban Lopez and Minshu Du. Contact us for further details. 6 The base level (100) of pending home sales is the average pending home sales of year 2008. 7 Including cancelled foreclosures and auctions
Housing Forecast January 2019 5 In December 2018, according to the Illinois Department of Employment Security (IDES) news release, the Illinois unemployment increased to 4.3%. Non-farm payroll jobs increased by +13,600 over the month. The largest gains were in three sectors; government (+6,300), leisure and hospitality (+4,600), and trade, transportation and utilities (+2,800). In November 2018, the one-year-ahead forecast for Illinois indicates that the non-farm employment will change at a rate between 0.36% and 0.41%, corresponding to job gains between 22,300 and 24,900. The largest contributors to the forecast increase are education and health, manufacturing, and leisure and hospitality. In December 2018, a new study from the National Association of Home Builders (NAHB) found that millions could be priced out of the new-home market. The report estimated that that a mere 25 basis-point increase in the mortgage rate would knock out around one million potential homebuyers across the U.S., while a $1,000 increase in the median home price would push out an estimated 127,000 households. In individual states and cities, the numbers vary depending on the population and the cost of homes. In general, cities and states with large populations, and thus a bigger pool of potential buyers, would be more affected by small changes in prices, according to NAHB. Longer-term Outlook In December, the Conference Board Consumer Confidence Index decreased while the University of Michigan Consumer Sentiment Index increased. The Conference Board Consumer Confidence Index declined to 128.1 from 136.4 last month. The survey revealed that consumers assessment of current conditions declined slightly and consumers outlook for the labor market was also less favorable. Expectations regarding job prospects and business conditions weakened, but still suggest that the economy will continue expanding at a solid pace in the short-term. The University of Michigan Consumer Sentiment Index rose to 98.3 from 97.5 last month. The survey reported that consumer sentiment remained at the same favorable levels in the December survey as it has recorded throughout the year and the strength was due to gains in current economic conditions. In December, Fannie Mae Home Purchase Sentiment Index (HPSI) decreased to 83.5 from 86.2 last month. The survey reported that consumer attitudes regarding whether it's a good time to buy a home worsened significantly in the last month, as well as from a year ago, to a survey low. Meanwhile, consumers' views on the direction of the economy, a key support for housing market sentiment of late, has softened somewhat from its October high. Looking ahead, consumers expect the pace of home price growth to slow over the course of 2019, which may temper growing concern over housing affordability. The Chicago Business Activity Index (CBAI) decreased to 98.9 in November from 104.0 in October. The increase is mainly attributed to negative manufacturing, and construction job growth and a decline in retail sales. Once again consumer sentiment indices are pointing in different directions, noted Geoffrey J.D. Hewings, Director Emeritus of the Regional Economics Applications Laboratory. Clearly, the uncertainty in the market exacerbated by the partial government shutdown has generated some additional caution among potential home buyers. The outlook for the next three months suggests a continuation of this trend, dampening price increases in Illinois and Chicago.
Housing Forecast January 2019 6 Oct-18 Nov-18 Dec-18 Forecast for January 2019 report Jan-19-7.3% -9.9% -5.3% -7.2% -20.4% -27.5% -16.9% -22.9% Feb-19-1.1% -1.5% -2.6% -3.5% 7.1% 9.6% 2.5% 3.4% Mar-19-2.8% -3.9% -5.3% -7.2% 42.3% 57.3% 42.1% 56.9% 3 Month Avg. Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 PERCENTAGE CHANGE FOR THE TOTAL NUMBER OF SALES Annual SUMMARY OF THE FORECAST INTERVALS FOR THE TOTAL NUMBER OF SALES Annual -3.6% -4.9% -4.6% -6.2% 7.7% 10.4% 7.5% 10.2% SUMMARY OF THE FORECAST FOR THE MEDIAN PRICE Monthly Illinois Chicago PMSA Illinois Chicago PMSA 1.6% -0.2% 4.9% 5.1% 0.1% -0.9% -11.0% -10.8% -14.7% -16.5% -15.7% -16.0% 3 Month Avg. -4.1% -5.6% -7.1% -7.1% Monthly Illinois Chicago PMSA Illinois Chicago PMSA Illinois Chicago PMSA Illinois Chicago PMSA $190,000 $230,000 Oct-17 $185,000 $222,000 $190,000 $232,000 Nov-17 $185,000 $225,000 $185,500 $225,000 Dec-17 $185,000 $225,000 $184,469 $223,664 Jan-18 $185,000 $223,000 $183,452 $224,841 Feb-18 $185,000 $227,500 $199,966 $241,493 Mar-18 $198,000 $240,000 ANNUAL PERCENTAGE CHANGE OF THE MEDIAN PRICE Illinois Chicago PMSA Illinois Chicago PMSA 2.7% 3.6% Oct-17 3.9% 3.3% 2.7% 3.1% Nov-17 4.2% 5.1% 0.3% 0.0% Dec-17 6.3% 5.1% -0.3% 0.3% Jan-18 8.2% 6.7% -0.8% -1.2% Feb-18 8.8% 8.3% 1.0% 0.6% Mar-18 4.3% 4.3%
Housing Forecast January 2019 7 Median Prices and Recovery Illinois Chicago PMSA [$2008] [$2018] [$2008] [$2018] December 2008 Median Price $150,650 $175,177 $180,125 $209,451 December 2018 Median Price $159,497 $185,500 $193,497 $225,000 Price Ratio (December 18/ December 08) Adjusted 1.06 Adjusted 1.07 Unadjusted 1.23 Unadjusted 1.25 Recovery Forecasts using Annually Growth Rates Illinois Chicago PMSA Annual Years to Years to Recovery Rate Recovery Rate* Recover** Recover Current Month -1.6% 3.4-1.9% 3.8 Past 3 months -0.3% 19.1 0.0% -156.8 Past 6 months -0.6% 9.6-0.2% 29.1 Past 9 months 0.1% -60.4 0.1% -83.4 Past 12 months 1.3% -4.5 1.1% -6.5 *Annual recovery rate is the average of annual change rates in past months ** Years to recover is calculated using the following formula: PriceDecember2018*(1+recovery rate)^years=pricedecember2008. 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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