Housing Price Forecasts Illinois and Chicago PMSA, April 2013 Presented To Illinois Association of Realtors From R E A L Regional Economics Applications Laboratory, Institute of Government and Public Affairs University of Illinois April 21, 2013 Contact: Geoffrey Hewings 217-333-4740 (hewings@illinois.edu) Xian Fang 217-244-7226 (fang21@illinois.edu)
Housing Forecast April 2013 2 Housing Price Forecast: Illinois and Chicago PMSA, April 2013 The Housing Market In March, both Illinois and the Chicago PMSA experienced positive gains in sales and median prices on a yearly base. The price forecast indicates year-over-year increases in median prices for April, with little or no change for May and June. The sales forecast for April, May and June 2013 suggests continuing gains for Illinois and the Chicago PMSA. Three main sources play major roles in the supply of housing that ultimately affects the housing market - residential construction, housing tax reform and foreclosed properties that clear the market. In March, both Illinois and Chicago PMSA experienced positive gains in sales and median prices on a yearly base. 10,992 houses were sold in Illinois, 13.5% more than a year ago. In the Chicago PMSA, 7,914 houses were sold, 18.1% more than last March. The median price was $135,000 in Illinois, up 3.7% from March last year. Comparable figures for the Chicago PMSA were $155,000 with an annual increase rate of 2.0%. Given the latest average annual pending sales rate, Illinois had enough housing inventory for 5.1 months 1 (down from 9.5 months a year ago). In the Chicago PMSA, the comparable figure was 3.6 months (down from 8.5 months a year ago). Homes at all price ranges experienced decreases in months of supply, due to both less properties being listed and more pending sales. The listing of existing homes for sale has maintained a downtrend since January 2008, 2 but the increasing activity in residential construction signifies a potential adjustment. The listings for sale in Illinois reached 61,484 in March, 46.1% down from 114,068 in the March of 2008. On the other hand, the nationwide rising employment in residential construction implied an active response to the low housing supply on the market. According to the Bureau of Labor Statistics (BLS) Employment Situation report, the employment growth for the construction sector ranked third among all industrial sectors. Specifically, the residential building sector created 2,300 jobs and the residential specialty trade contractors added 12,500 positions. However, according to the National Association of Home Builders (NAHB), the rising number of job positions for builders and contractors was accompanied by shortages of construction labor. Unfilled construction positions are at a high post-great Recession level and the successful filling of an open position has become one of the top concerns of builders in 2013 in a survey by NAHB/Wells Fargo. Another hot topic is the tax reform related to home mortgage interest deduction, which can bring both quantity and price effects. The president s budget proposed a 28 percent tax credit to replace the mortgage interest deduction with a limit of $1 million. Meanwhile, there are several other plans proposed as alternatives. Although they are different in details, they consistently aim at raising tax revenues without hurting the promotion of homeownership and fairness. For 1 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. 2 January 2008 is when our records start.
Housing Forecast April 2013 3 instance, Viard 3 (2013) proposed a 15 percent refundable tax credit to replace the mortgage interest deduction and limit this credit to mortgages up to $300,000. This proposal is designed to hinder the incentive for construction and investment of high-end homes, which is artificially motivated by the mortgage interest deduction system. According to his analysis, a reduction in the housing tax benefits would not bring strong price effects as long as the supply of housing is responsive. A third source of supply is from the distressed properties and the gradual removal of them from the lengthy foreclosure process can increase the potential housing supply. In March 2013, foreclosure activities improved quietly as in the last few months. The ratio of foreclosure starts to foreclosure sales was 0.72 in March, the sixth consecutive month that presented a ratio below 1. The ratio below 1 indicates a decline in the foreclosure backlog in the court. More specifically, 4,277 houses were newly filed for foreclosures in the Chicago PMSA (19.3% down from a year ago), 5,953 foreclosure sales were processed (up 29.3% than a year ago) and total filings reached 10,230 (3.3% up from a year ago). Since the repossessed properties are under the control of lenders, and their decision to list a property for sale is made in a similar way to a normal listing. Lenders adjust the supply of homes according to the market demand and their price expectations. All the three aspects influence the supply in the long run. Not surprisingly, they involve multiple uncertainties stemming from the general state of the economy, proposed policy changes and market expectations creating a dynamic response in the market conditions for housing. Two consumer confidence surveys in March pointed to different expectations in the near future. The Conference Board Consumer Confidence Index decreased by 12.2% to 59.7 (1985=100) on a monthly basis while the University of Michigan Consumer Sentiment Index reported a continuing month-over-month gain by 3.1% to 78.6 (1964=100). Based on historical data dating back to 2008, the year-over-year forecasts show gains in median prices and sales for both Illinois and Chicago PMSA. The price forecast indicates increases in median prices for April with unchanged levels for May and June on a yearly basis. In Illinois, the median price is forecast to trend up by 3.1% in April, and inch up by 0.4% in May and down by -0.2% in June. For the Chicago PMSA, the comparable figures are 2.2% in April, followed by -0.2% in May and 0.3% in June. The sales forecast for April, May and June 2013 suggests continuing gains for Illinois and the Chicago PMSA. On year-over-year basis, the three month average forecast increases range from 4.4% to 5.9% for Illinois and 7.6% to 10.2% for the Chicago PMSA. Based on the already high sales volume in 2012, the forecasted gains are very encouraging. The Housing Market Current Condition In March, both Illinois and the Chicago PMSA experienced positive gains in sales and median prices on a yearly base. 10,992 houses were sold in Illinois, 13.5% more than a year ago. In the Chicago PMSA, 7,914 houses were sold, 18.1% more than last March. The median price was $135,000 in Illinois, 3.7% up from March last year. Comparable figures for the Chicago PMSA were $155,000 with an annual increase rate of 2.0%. 3 Viard, Alan. "Proposal 8: Replacing the Home Mortgage Interest Deduction: The Hamilton Project." (2013).
Housing Forecast April 2013 4 (Reference: Illinois and Chicago PMSA Total Home Sales and Median Home Sales Price figures; Forecast for April 2013 report table) In March, at the latest average annual pending sales rate, Illinois had enough housing inventory for 5.1 months 4 (down from 9.5 months a year ago). In the Chicago PMSA, the comparable figure was 3.6 months (down from 8.5 months a year ago). Homes at all price ranges experienced the decreases in months of supply, due to less listings and more pending sales (Reference: Illinois and Chicago PMSA Annual Months Supply by Price Range figures) In March, market shares of homes at different price ranges kept similar structure as a year ago. For Illinois, the lower end of the market (less than $200K) obtained a market share of 67.9% (down from 69.1% a year ago). The comparable figure for the Chicago PMSA was 61.2%% (down from 62.3% a year ago). (Reference: Illinois and Chicago PMSA Price Stratification figures) In March, average time on market 5 (TOM) decreased more for homes priced in the middle. While homes priced below $200K and above $700K took about three months or more to sell (4%-19% less time than a year ago), most of the homes at the median price levels were sold within 3 months (22%-40% less time than a year ago). (Reference: Illinois and Chicago PMSA Average Time on the Market figures) The Housing Market Forecast and Future Condition The price forecast indicates increases in median prices for April and similar level for May and June on a yearly base. In Illinois, the median price is forecast to trend up by 3.1% in April, and inch up by 0.4% in May and down by -0.2% in June. For the Chicago PMSA, the comparable figures are 2.2% in April, followed by -0.2% in May and 0.3% in June. (Reference: Forecast for April 2013 report table) The sales forecast for April, May and June 2013 suggests continuing gains for Illinois and the Chicago PMSA. On a year-over-year basis, the three month average forecasts point to increases of 4.4% to 5.9% for Illinois and 7.6% to 10.2% for Chicago PMSA. According to the high sales volume in 2012, the forecasted gains are very encouraging (Reference: Forecast for April 2013 report table) The pending home sales index 6 is a leading indicator based on contract signings. This March, homes put under contracts increased both on a yearly basis and a monthly basis. The pending home sales index is 142.0 in Illinois, 10.7% up from last month and 2.4% up from a year ago. In the Chicago PMSA, the comparable figure is 173.9, 13.0% up from last month and 12.5% up from a year ago. (Reference: Illinois and Chicago PMSA Pending Home Sales Index figure) In March 2013, 4,277 houses were newly filed for foreclosures in the Chicago PMSA (19.3% down from a year ago), 5,953 foreclosure sales were processed (up 29.3% than a year ago) and total filings reached 10,230 (3.3% up from a year ago). The ratio of foreclosure starts to foreclosure sales was 0.72 in March, the sixth consecutive month that had a ratio below 1. The ratio below 1 indicates a decline in the foreclosure backlog in the court. At current annual foreclosure sales rate, it will take 2.30 years to clear the 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. 5 Average time on market is defined as the average days from listing to pending for homes at a given month. 6 The base level (100) of pending home sales is the average pending home sales of year 2008.
Housing Forecast April 2013 5 entire active inventory 7 and another 1.21 years to clear the limbo inventory. (Reference: Chicago PMSA Foreclosure Activities figure) The Economy In March 2013, according to the Bureau of Labor Statistics (BLS) Employment Situation report, the unemployment rate edged down to 7.6% and the number of nonfarm payroll jobs experienced a weak gain by 88,000. The largest job creation was led by professional and business services (+51,000) and followed by health care (+23,000). In the construction sector, residential building created 2,300 positions and residential specialty trade contractors brought 12,500 positions. In February 2013, according to Illinois Department of Employment Security (IDES) news release, Illinois unemployment edged up to 9.5% from 9.0%. This increasing unemployment rate was explained by an increase in labor force participation rates. People gained confidence in securing a job and reentered the job market, after seeing the job growth over the past few months. By February 2013, Illinois has added 231,200 new private sector jobs since January 2010 when Illinois employment growth resumed after the national recession. The leading growth sectors are Professional and Business Services (+94,700), followed by Educational and Health Services (+53,700), and Trade, Transportation and Utilities (+45,500). Government has experienced the largest job loss (-25,500). In February 2013, the one-year ahead forecast for IL total non-farm jobs has shown gains for all sectors except Construction (-1.97%; -3,700) and Information (-1.11%; - 1,100). Job gains forecast are led by Professional and Business Services (2.83%; 24,800), followed by Education and health (2.46%; 21,500), and Financial Activities (2.08%; 7,700). Longer-term Outlook Two consumer confidence surveys pointed to different directions. The Conference Board Consumer Confidence Index decreased by 12.2% to 59.7 (1985=100) on a monthly basis while the University of Michigan Consumer Sentiment Index reported a continuing month-over-month gain by 3.1% to 78.6 (1964=100). The inventory in both the state and Chicago markets suggest that demand has begun to return to the housing market, noted Geoffrey Hewings, Director of the Regional Economics Applications Laboratory of the University of Illinois. However, foreclosed properties are accounting for a sizeable portion of these sales the good news is that foreclosed sales are outpacing new additions to the foreclosure inventory but at a cost of dampening median price increases. 7 The time range used here for the distinction between active inventory and limbo inventory is three years, which is different than the two years range used in the past reports. As a result, the time for selling out the active inventory increases while the time for selling out the limbo inventory decreases.
Housing Forecast April 2013 6 Forecast for April 2013 report PERCENTAGE CHANGE FOR THE TOTAL NUMBER OF SALES Annual Monthly Jan-13 33.0% 38.8% -17.4% -15.6% Feb-13 18.0% 22.3% -3.2% -4.6% Mar-13 13.5% 18.1% 31.7% 31.0% 3 Month Avg. 20.3% 25.2% -15.8% -14.5% SUMMARY OF THE FORECAST INTERVALS FOR THE TOTAL NUMBER OF SALES Annual Monthly Apr-13 10.3% 13.9% 14.3% 19.4% 2.4% 3.3% 2.6% 3.5% May-13 2.6% 3.6% 6.3% 8.5% 9.0% 12.2% 9.8% 13.2% Jun-13 1.4% 1.9% 3.7% 5.0% 6.8% 9.2% 6.2% 8.4% 3 Month Avg. 4.4% 5.9% 7.6% 10.2% 28.4% 38.5% 28.2% 38.1% SUMMARY OF THE FORECAST FOR THE MEDIAN PRICE Jan-13 $125,000 $140,000 Jan-12 $123,500 $140,000 Feb-13 $124,000 $140,000 Feb-12 $118,800 $135,000 Mar-13 $135,000 $155,000 Mar-12 $130,230 $151,900 Apr-13 $139,671 $163,475 Apr-12 $135,500 $160,000 May-13 $145,648 $169,593 May-12 $145,000 $170,000 Jun-13 $154,659 $181,951 Jun-12 $155,000 $181,450 ANNUAL PERCENTAGE CHANGE OF THE MEDIAN PRICE Jan-13 1.2% 0.0% Jan-12-8.9% -11.1% Feb-13 4.4% 3.7% Feb-12-7.2% -11.7% Mar-13 3.7% 2.0% Mar-12 0.2% -3.9% Apr-13 3.1% 2.2% Apr-12 0.3% -1.2% May-13 0.4% -0.2% May-12 3.6% 0.6% Jun-13-0.2% 0.3% Jun-12 3.3% 0.8%
Housing Forecast April 2013 7 Forecast for March 2012 report PERCENTAGE CHANGE FOR THE TOTAL NUMBER OF SALES Annual Monthly Dec-12 17.1% 21.2% -3.5% -3.1% Jan-13 32.7% 38.5% -17.6% -15.7% Feb-13 16.2% 20.2% -4.5% -6.1% 3 Month Avg. 21.3% 25.9% -18.9% -17.1% SUMMARY OF THE FORECAST INTERVALS FOR THE TOTAL NUMBER OF SALES Annual Monthly Mar-13 0.9% 1.2% 4.4% 5.9% 16.2% 22.0% 16.0% 21.6% Apr-13-0.7% -0.9% 2.7% 3.7% 1.9% 2.5% 1.8% 2.4% May-13-4.4% -5.9% -1.6% -2.2% 12.8% 17.3% 13.0% 17.6% 3 Month Avg. -1.6% -2.2% 1.6% 2.1% 12.6% 17.0% 12.0% 16.3% SUMMARY OF THE FORECAST FOR THE MEDIAN PRICE Dec-12 $131,000 $150,000 Dec-11 $125,000 $145,000 Jan-13 $125,000 $140,000 Jan-12 $123,500 $140,000 Feb-13 $124,900 $140,000 Feb-12 $118,900 $135,000 Mar-13 $129,313 $145,378 Mar-12 $130,105 $151,950 Apr-13 $133,999 $153,385 Apr-12 $135,500 $160,000 May-13 $139,770 $158,500 May-12 $145,000 $170,000 ANNUAL PERCENTAGE CHANGE OF THE MEDIAN PRICE Dec-12 4.8% 3.4% Dec-11-12.0% -13.4% Jan-13 1.2% 0.0% Jan-12-8.9% -11.1% Feb-13 5.0% 3.7% Feb-12-7.3% -11.7% Mar-13-0.6% -4.3% Mar-12 0.1% -3.9% Apr-13-1.1% -4.1% Apr-12 0.3% -1.2% May-13-3.6% -6.8% May-12 3.6% 0.6%
Total Sales Median Sales Price Housing Forecast April 2013 8 $160,000 $150,000 $140,000 Illinois Median Home Sales Price $154,659 $151,500 $145,648 $139,671 2011 2012 2013 Forecast $130,000 $120,000 $125,000 $125,000 $110,000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 14,000 12,000 Illinois Total Home Sales 10,992 13,491 2011 2012 2013 10,439 10,000 8,000 6,000 8,502 6,484 5,610 8,341 4,000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Total Sales Median Sales Price Housing Forecast April 2013 9 $190,000 $180,000 $170,000 Chicago PMSA Median Home Sales Price $181,951 $181,000 $169,593 $163,475 2011 2012 2013 Forecast $160,000 $150,000 $140,000 $140,000 $140,000 $145,000 $130,000 $120,000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Chicago PMSA: Cook, DeKalb, DuPage, Grundy, Kane, Kendall, Lake, McHenry and Will counties 10,000 8,000 Chicago PMSA Total Home Sales 7,914 9,464 2011 2012 2013 6,000 6,333 6,039 4,564 4,000 2,000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Chicago PMSA: Cook, DeKalb, DuPage, Grundy, Kane, Kendall, Lake, McHenry and Will counties
Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 Housing Forecast April 2013 10 220 Pending Home Sales Index 180 140 100 60 20 IL Pending Index Chicago Pending Index
Price by Ranges Price by Ranges Housing Forecast April 2013 11 Illnois Annual Months' Supply by Price Range Overall 5.1 9.5 700K~UP 9.1 14.9 500K~700K 6.1 11.9 300K~500K 5.3 10.0 200K~300K 5.1 9.5 100K~200K 0 ~100K 4.9 4.6 9.4 8.7 2013 Mar 2013 Feb 2012 Mar -1.0 1.0 3.0 5.0 7.0 9.0 11.0 13.0 15.0 Overall 700K~UP Chicago Annual Months' Supply by Price Range 3.6 8.5 7.1 500K~700K 4.5 9.8 300K~500K 3.9 8.3 200K~300K 3.9 8.2 100K~200K 0 ~100K 3.4 2.9 8.5 7.9 2013 Mar 2013 Feb 2012 Mar 0.0 2.0 4.0 6.0 8.0 10.0 12.0 Chicago PMSA: Cook, DeKalb, DuPage, Grundy, Kane, Kendall, Lake, McHenry and Will counties
Share of Total Sales Share of Total Sales Housing Forecast April 2013 12 Illinois Price Stratification 45% 40% 35% 30% 36.1% 36.0% 31.8% 33.1% 2013 Mar 2013 Feb 2012 Mar 25% 20% 15% 10% 15.0% 15.5% 11.4% 10.4% 5% 3.0% 2.7% 2.6% 2.4% 0% 0 ~100K 100K~200K 200K~300K 300K~500K 500K~700K 700K~UP 40% Chicago PMSA Price Stratification 35% 30% 25% 30.2% 31.1% 30.7% 31.6% 2013 Mar 2013 Feb 2012 Mar 20% 15% 16.5% 17.2% 14.5% 13.5% 10% 5% 4.0% 3.5% 3.7% 3.4% 0% 0 ~100K 100K~200K 200K~300K 300K~500K 500K~700K 700K~UP Chicago PMSA: Cook, DeKalb, DuPage, Grundy, Kane, Kendall, Lake, McHenry and Will counties
Days Days Housing Forecast April 2013 13 140 120 100 80 60 95 Illinois Average Time on the Market (Day) 2013 Mar 2013 Feb 2012 Mar 113 115 118 118 121 99 103 92 90 81 78 40 20 0 0 ~100K 100K~200K 200K~300K 300K~500K 500K~700K 700K~UP 140 120 100 80 Chicago PMSA Average Time on the Market (Day) 2013 Mar 2013 Feb 2012 Mar 120 121 105 109 113 104 82 92 83 86 75 73 60 40 20 0 0 ~100K 100K~200K 200K~300K 300K~500K 500K~700K 700K~UP Chicago PMSA: Cook, DeKalb, DuPage, Grundy, Kane, Kendall, Lake, McHenry and Will counties
Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Housing Forecast April 2013 14 Chicago PMSA Foreclosure Activities 10,000 10,000 9,000 8,000 7,000 Active Inventory Limbo Inventory Foreclosure Inventory New Foreclosure Filings Foreclosure Sales 9,000 8,000 7,000 6,000 6,000 5,000 5,000 4,000 4,000 3,000 3,000 2,000 2,000 1,000 1,000 0 0 Chicago PMSA: Cook, DeKalb, DuPage, Kane, Kendall, Lake, McHenry and Will counties Source: University of Illinois REAL, Record Information Services, Inc.