Housing Price Forecasts Illinois and Chicago PMSA, September 2016 Presented To Illinois Realtors From R E A L Regional Economics Applications Laboratory, Institute of Government and Public Affairs University of Illinois Sept 22, 2016 Contact: Geoffrey Hewings 217-333-4740 (hewings@illinois.edu) Xian Fang 217-244-7226 (fang21@illinois.edu)
Housing Forecast September 2016 2 Housing Price Forecast: Illinois and Chicago PMSA, September 2016 The Housing Market In August, median prices experienced positive annual growth; the same was true for sales that had experienced an unexpected downtick last month. 16,455 houses were sold in Illinois, edging up 0.87% from a month ago and 6.7% from a year ago. In the Chicago PMSA, 11,906 houses were sold, up 0.38% from a month ago and 7.6% from a year ago. The median price was $192,000 in Illinois, up 6.7% from August last year; the comparable figure for the Chicago PMSA was $230,000, up 4.5% from this time last year. In August, for the Chicago PMSA, the percentage of foreclosed sales (e.g. REOs) among the total sales was 9.6%, the lowest August reading since 2009. 10,613 regular sales were made, 9.2% more than last year. 1,214 foreclosed properties were sold, 5.0% less than last year. The median price was $241,000 for regular property sales, 2.5% more than last year; the comparable figure for the foreclosed properties was $140,000, up 18.6% from this time last year. The median sales price in August 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 August 2008 median sales price was $190,000 (in $2008) and $208,779 (in $2016); the current price level was 92% of the 2008 level after adjusting (101% before adjusting). In the Chicago PMSA, the August 2008 median sale price is $250,000 (in $2008) and $274,710 (in $2016); the comparable figure for price recovery in August 2016 is 84% after adjustment (92% before adjusting). According to average annual growth rates of prices in the past months, it could take about 1.5~2.0 years (18~23 months) for Illinois and 3.1~5.3 years (37~64 months) for the Chicago PMSA to recover to the 2008 levels. The sales forecast for September, October and November 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 increase between 6.4% and 8.6%; the comparable figures for the Chicago PMSA reveal an increase of between 8.0% and 10.8%. On a monthly basis, the threemonth average sales are forecast to decrease by 10.5%-14.1% for Illinois and decrease by 10.5%-14.2% 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 175.5 (2008=100) in Illinois, up 11.2% from a year ago. In the Chicago PMSA, the comparable figure is 203.6, up 16.5% from a year ago. The median price forecast indicates moderate annual growth in both Illinois and the Chicago PMSA for September, October and November. In Illinois, the median price is forecast to rise by 6.2% in September, 6.0% in October and 6.0% in November. For the Chicago PMSA, the comparable figures are 2.5% in September, 1.8% in October and 1.6% in November. As a complement to the median housing price index (HPI), the REAL HPI 1 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 5.7% in September, 5.1% in October and 7.7% in November. The comparable figures for the Chicago PMSA are 8.5% in September, 8.8% in October and 9.7% in 1 REAL HPI was developed by Esteban Lopez and Minshu Du. Contact us for further details.
Housing Forecast September 2016 3 November. REAL HPI takes housing characteristics into account and constructs comparable baskets of homes for each month. As the home prices increase, the concern on home affordability has been discussed in the previous monthly report. This month, a new issue that has accompanied rising home prices has drawn attention, i.e. the Home Equity Lines of Credit (HELOCs). According to the Scotsman Guide, different institutions have reported a surge in new HELOCS originations this year compared to the same time in 2015. Due to the increase in the housing prices, borrowers are now able to tap into their increasing home equity. Some homeowners at the high price end of the markets spend the additional source of money on improving their homes, and some other investors are using HELOCs to buy more properties for renting. Nevertheless, HELCOs are still way below the 2005-2006 level. Another impact of rising home prices is the reduction in the percentage of homes under water. The Housing Market Current Condition In August, both median prices and sales experienced annually positive growth. 16,455 houses were sold in Illinois, edging up 0.87% from a month ago and 6.7% from a year ago. In the Chicago PMSA, 11,906 houses were sold, increasing 0.38% from a month ago and 7.6% from a year ago. The median price was $192,000 in Illinois, up 6.7% from August last year; the comparable figure for the Chicago PMSA was $230,000, up 4.5% from this time last year. (Reference: Illinois and Chicago PMSA Total Home Sales and Median Home Sales Price figures; Forecast for September 2016 report table) In August, for the Chicago PMSA, the percentage of foreclosed sales (e.g. REOs) among the total sales was 9.6%, the lowest August reading since 2009. 10,613 regular sales were made, 9.2% more than last year. 1,214 foreclosed properties were sold, 5.0% less than last year. The median price was $241,000 for regular property sales, 2.5% more than last year; the comparable figure for the foreclosed properties was $140,000, up 18.6% from this time last year. In August, at the latest average annual pending sales rate, Illinois had enough housing inventory for 4.7 months 2 (down from 5.8 months a year ago). In the Chicago PMSA, the comparable figure was 3.5 months (down from 4.5 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 August, 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 18.3% from 21.3% a year ago; the comparative figure for the Chicago PMSA showed a decrease to 10.4% from 13.5% a year ago. (Reference: Illinois and Chicago PMSA Price Stratification figures) 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 September 2016 4 The Housing Market Forecast and Future Condition The median price forecast indicates moderate annual growth in both Illinois and the Chicago PMSA for September, October and November. In Illinois, the median price is forecast to rise by 6.2% in September, 6.0% in October and 6.0% in November. For the Chicago PMSA, the comparable figures are 2.5% in September, 1.8% in October and 1.6% in November. (Reference: Forecast for September 2016 report table) As a complement to the median housing price index (HPI), the REAL HPI 3 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 5.7% in September, 5.1% in October and 7.7% in November. The comparable figures for the Chicago PMSA are 8.5% in September, 8.8% in October and 9.7% in November. REAL HPI takes housing characteristics into account and constructs comparable baskets of homes for each month. (Reference: Housing Price Index) The sales forecast for September, October and November 2016 suggests positive growth on a yearly basis and negative growth on a monthly basis. Annually for Illinois, the threemonth average forecasts point to increase by 6.4% to 8.6%; the comparative figures for the Chicago PMSA will be an increase by 8.0% to 10.8%. On a monthly basis, the three-month average sales are forecast to decrease by 10.5%-14.1% for Illinois and decrease by 10.5%- 14.2% for the Chicago PMSA. (Reference: Forecast for September 2016 report table) The pending home sales index 4 is a leading indicator based on contract signings. This August, the number of homes put under contract was greater than last year. The pending home sales index is 175.5 (2008=100) in Illinois, up 11.2% from a year ago. In the Chicago PMSA, the comparable figure is 203.6, up 16.5% from a year ago. (Reference: Illinois and Chicago PMSA Pending Home Sales Index figure) In August 2016, 1,927 houses were newly filed for foreclosure in the Chicago PMSA (up 20.9% and 24.6% respectively from a year and a month ago). 1,724 foreclosures were completed 5 (up 5.3% and down 1.7% respectively from a year and a month ago). As of August 2016, there are 40,154 homes at some stage of foreclosure the foreclosure inventory. The monthly average net flows of foreclosures (foreclosure inflows - outflows) were 45 in the past 6 months, 59 in the last 12 months and -19 in the last 24 months. (Reference: Chicago PMSA Foreclosure Inflows and Outflows, and Inventory figures). The Economy In August 2016, according to the Bureau of Labor Statistics (BLS) Employment Situation report, the national unemployment remained unchanged at 4.9% and nonfarm payroll jobs experienced gain of 151,000 jobs, much lower than for recent months. The employment gains were spearheaded by food services and drinking places (34,000), followed by social assistance (22,000) and professional and business services (20,000). 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. 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
Housing Forecast September 2016 5 In June 2016, the one-year-ahead forecast for Illinois indicates that the non-farm employment will increase at a rate between 0.40% and 0.51%, corresponding to job gains between 24,300 and 30,800. Five out of ten sectors are forecast with positive job growth: financial activities (0.34%; 1,300), professional and business services (2.31%; 21,600), education and health (1.32%; 12,000), leisure and hospitality (1.44%; 8,600), and other services (0.39%; 1,000). Longer-term Outlook In August, two consumer sentiment indices remained little changed while the other increased. According to The Conference Board Consumer Confidence Index, it increased by 4.4 points to 96.7. The University of Michigan Consumer Sentiment Index edged down to 89.8 from 90.0 last month; according to their survey, consumers pessimism was related to the uncertainties about the global economy and the presidential election. In August, Fannie Mae Home Purchase Sentiment Index (HPSI) decreased to 85 from 86.5 last month, but still presented an overall upward trend for the long run. The component of Good time to buy and confidence about not losing job increased while the rest of the index component decreased. 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) was unchanged at 94.0 in July. This is attributed to the fact that the positive job growth in the manufacturing and the nonmanufacturing sector was offset by the negative job growth in the construction sector and the decline in retail activities in the Chicago area. Sales recovered in August and prices continue to show positive annual gains, noted Geoffrey J.D. Hewings, director of the Regional Economics Applications Laboratory at the University of Illinois. However, month-to-month sales forecasts suggest a downward trend for the next three months, driven in part by low inventories, the poor job recovery in Illinois and uncertainties about the presidential election.
Housing Forecast September 2016 6 Forecast for September 2016 report
Housing Forecast September 2016 7 Median Prices and Recovery Illinois Chicago PMSA [$2008] [$2016] [$2008] [$2016] August 2008 Median Price $190,000 $208,779 $250,000 $274,710 August 2016 Median Price $174,684 $191,950 $209,312 $230,000 Price Ratio (August 16/August 08) Adjusted 0.92 Adjusted 0.84 Unadjusted 1.01 Unadjusted 0.92 Recovery Forecasts using Annually Growth Rates Illinois Chicago PMSA Annual Years to Years to Recovery Rate Recovery Rate* Recover** Recover Current Month 5.5% 1.6 3.4% 5.3 Past 3 months 4.4% 2.0 3.8% 4.8 Past 6 months 5.1% 1.7 4.7% 3.9 Past 9 months 5.7% 1.5 5.4% 3.4 Past 12 months 5.8% 1.5 5.9% 3.1 *Annual recovery rate is the average of annual change rates in past months ** Years to recover is calculated using the following formula: Price August2016 *(1+recovery rate)^years=price August2008. 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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