Market Conditions: August Sales Rise 22% YOY as Median Price Jumps 22.5%
The latest monthly sales numbers are in from the Illinois Association of Realtors.
August remained hot with the highest number of sales since 2007.
“The city of Chicago saw a 22.0 percent year-over-year home sales increase in August 2013 with 2,797 sales, up from 2,293 in August 2012.
The median price of a home in the city of Chicago in August 2013 was $245,000 up 22.5 percent compared to August 2012 when it was $200,000. Chicago condo prices also saw double-digit gains for the month, posting a 17.6 percent jump to $282,250. Average time on market in the city was 47 days, down 36.5 percent compared to 74 days in August 2012.”
Here is the data for the last 6 years:
[unordered_list style=”bullet”]
- August 2007: 2923 sales
- August 2008: 2078 sales
- August 2009: 1927 sales
- August 2010: 1486 sales
- August 2011: 1787 sales
- August 2012: 2209 sales
- August 2013: 2797 sales
[/unordered_list]
Median home prices over the last 5 years:
[unordered_list style=”bullet”]
- August 2007: $305,000
- August 2008: $297,500
- August 2009: $229,900
- August 2010: $200,000
- August 2011: $192,500
- August 2012: $200,000
- August 2013: $245,000
[/unordered_list]
Chicago condo sales for August:
[unordered_list style=”bullet”]
- 2007: 2,246 sales
- 2008: 1489 sales
- 2009: 1,239 sales
- 2010: 876 sales
- 2011: 1052 sales
- 2012: 1396 sales
- 2013: 1775 sales
[/unordered_list]
“In the city of Chicago, we continue to see condo sales drive our market, with an increase in the number of units sold to 1,775 in August 2013, up 23.1 percent from the previous year, and the median home price has risen by 17.6 percent, to $282,250,” said REALTOR® Zeke Morris, president of the Chicago Association of REALTORS and Operating Principal and Managing Broker, Keller Williams Realty, CCG. “As inventory is absorbed in some of the more popular areas of Chicago, our hope is that it spawns interest in neighborhoods that have not experienced the same growth, but offer viable, affordable housing options key to the economic renewal of our city.”
“Price and sales recovery continues and the forecast for the last quarter suggest that the momentum will be maintained,” noted Geoffrey J.D. Hewings, Director of the Regional Economics Applications Laboratory at the University of Illinois. “The price mix of homes sold is moving back to pre-recession levels as price increases move more homes into higher categories and as home buyers begin to seek more expensive properties. The sluggish economic recovery and increasing mortgage interest rates have not yet dampened housing demand.”
Illinois seems to be faring better than what is going on on the national level. The National Association of Realtors is uncharacteristically pessimistic about the housing market going forward.
“This high sales activity could be the last hurrah for the next 12 or 18 months,” Yun said. The NAR projects next year’s sales to total 5.2 million, and August’s rate “clearly exceeds my forecast projection.”
“A prolonged increase in mortgage rates will begin to hold back buyers,” who now appear to be prompted by higher rates to jump in before they go even higher, he said. “All the forces are for rising mortgage rates” though in the wake of Wednesday’s FOMC meeting, rates could dip, but only for one or two weeks.
Yun also said the new house shortage continues, slowing the pipeline Realtors depend on to provide more existing units for sale, that Realtor lock-box accesses in some markets took a nosedive in August, suggesting a slowdown ahead, and that first-time buyers are more “shut out” of the market than ever, meaning future move-up buyers will be fewer. And, Yun added, the trajectory of first-time sales is still aimed further downward.
What will happen this fall?
A) Low inventory will continue to push up Chicago housing prices
B) Inventory will remain low but sales will slow as well
C) Sales will remain about the same as the pre-recession September/October sales- i.e. we’ve gone back to a “normal” market
D) None of the above
Illinois home sales and prices continue upward climb in August; Statewide sales rise 17.3 percent, median prices rise 13.6 percent [Illinois Association of Realtors, Press Release, September 19, 2013]
US NAR: Existing home sales surprise again in August [MNI, Denny Gulino, September 19, 2013]
E) All of the above
It’s definitely slowed from the summer. Many properties are no longer selling in the first week anymore. There are also a lot more price reductions (as I’ve commented on before.) Lots of sellers jumped in thinking they could get 30% more than they paid 5 years ago and are now finding that that ship has sailed. They should have sold in May/June.
I’m also still seeing a majority of condos in the GZ selling for at or less than the 2004-2009 price. Those who are making money are those who bought in the last 3 years. Bubble buyers are still underwater.
If a property is priced right, it is still selling fast especially if it has a unique feature in the “right” neighborhood.
It’s also interesting that the NAR believes that housing will slow not so much due to the rise in mortgage rates as the difficulty in actually getting a loan. Maybe they’re just trying to spin the mortgage increase.
Nationally, the percentage of cash buyers also increased in August to 32%. The normal range is around 10%. Without the cash buyers (i.e. investors), this housing market would already be toast.
It is impossible for the pace from this summer to continue. It it did, prices would double by next year. Here is what I think
1) Sales will slow down. This isn’t a bad thing. Market has been in bubble mode for a year. This can’t continue.
2) Prices will increase, but not nearly as much. Back to the 2-5% a year increases. 25% increases are done
3) Inventory will remain low
“Those who are making money are those who bought in the last 3 years. Bubble buyers are still underwater.”
As it should be. You can’t expect to buy the top of the bubble, and then get out unscathed. That would imply that it wasn’t the top of the bubble…
” not so much due to the rise in mortgage rates as the difficulty in actually getting a loan”
Why is getting the loan difficult? maybe bc they no longer qualify for the loan bc the payment went up bc the rate went up? Nah, couldn’t have anything to do with that.
Haven’t done the formal analysis but I will tell you that I’m still having trouble getting my buyers in to see properties before they sell. It’s happened on at least 3 properties in the last week. New construction from the big players still sells in 4 weeks.
And sale price vs. list price is irrelevant since it’s half determined by the list price. Price it low and you’ll never need to lower it.
“Lots of sellers jumped in thinking they could get 30% more than they paid 5 years ago and are now finding that that ship has sailed. They should have sold in May/June.”
So, you are predicting prices go down from here?
Not sure why anyone would think prices will decrease unless they can predict another global meltdown or something. Price increases will slow of course.
I agree with vlajos. Plus, new website sucks.
“Not sure why anyone would think prices will decrease unless they can predict another global meltdown or something.”
Well, she’s been dead wrong for years, why should she stop now?
I don’t know WHAT to think about Chicago home prices. It’s all Fed distorted and that will go away. Then what?
Chicago home prices hadn’t fallen year over year in over 70 years and then they did for several years. Will we see that again? Who knows? Many people thought they could NEVER fall.
The events of this week were critical to the global economy. The distortions from Central Bank actions continue to grow. It will only end one way: badly. But when and how? Who knows? Could be next year or the year after. First distress in the mortgage market was in July 2007 and it took well over a year for Lehman to collapse and for housing prices to even start to fall. It won’t happen over night.
But we are now seeing:
1. The Fed too afraid to taper due to the massive weakness (nearly crisis) in India and Brazil. I think the swift movement higher on mortgage rates also spooked the Fed. Basically, the US economy cannot handle even 5% mortgage rates (sadly.) But with Bullard now coming out and saying that the taper may be on again in October (just a few weeks away)- the Fed delay on the taper didn’t really have the desired impact. The 10-year is still above 2.7% and probably back on its way to 3% and beyond.
2. China will collapse. Who knows when though. They are allowing the housing bubble to reinflate on the hopes that it can drive some growth (fake as it is.) But banks have tightened and they’re getting credit through unstable middlemen now. These are the signs that the end is near. Consumer spending isn’t great. Look what has happened to Yum and McDonalds sales there the last few months, although Starbucks appears to be okay maybe because they are more focused in the bigger cities like Beijing and Shanghai. The Chinese economy is really unstable right now.
3. Europe has had a hard go of it but the austerity might be helping. It doesn’t seem nearly as unstable as even a year ago but the economic conditions have hardly improved in Spain, Italy or Greece. Portugal is also still on the brink. The UK appears to be improving though.
4. Japan is in dire straits. Still stimulating (between the US and Japan $160 billion a month is being pumped into the global economy- with almost no impact.) Massive debt.
5. What happens if the Republicans actually do push the default? Who will blink first? The last thing the US economy needs is more incompetency in Washington. But it looks like that’s what we’re going to get.
If you’re going to live in your house for 10 years, go ahead and buy. You have to live somewhere. This is what I’ve ALWAYS said since I started this site. But people who think they’re going to live in a place for 3 to 5 years- good luck. Housing is a long term trade.
“If you’re going to live in your house for 10 years, go ahead and buy.”
What if you are going to live in one house for 5 years, and another house for the next 5?
“What if you are going to live in one house for 5 years, and another house for the next 5?”
Rent. We’re in a rising rate environment something that neither Generation X or Y has ever experienced in their life. I wouldn’t want to sell a big asset 5 years from now with rates much, much higher than they are now and with transaction costs etc. Nothing wrong with renting. You can still create wealth many, many other ways (and much better ways.)
You all have been brainwashed into thinking that “buying” is somehow preferred. Sometimes it is- sometimes it’s not. It depends on the individual’s circumstances. But with so many jobs and opportunities across the country and globe now- being tied down to a house is probably not the best bet. Heck, I know people who have been screwed simply by changing a job in the suburbs. Imagine all those Motorola employees who bought way out in the burbs. They’re stuck doing that commute. Yuck.
“I wouldn’t want to sell a big asset 5 years from now with rates much, much higher than they are now and with transaction costs etc. ”
But you would also be BUYING a big asset at the same time. It cuts both ways. Zero sum. The only real issue is transaction costs.
“You all have been brainwashed into thinking that “buying” is somehow preferred.”
No. Spending less money is.
“But you would also be BUYING a big asset at the same time. It cuts both ways. Zero sum. The only real issue is transaction costs.”
And those are about 8%. You’d still need rising housing prices to make any money (and that’s not including all the other costs of home ownership which we have covered here.) Are you buying new appliances? New windows? Repairing that roof? If it’s a condo, you’ll have assessments and maybe some special assessments in those 5 years.
I know someone who just bought a house that hasn’t been updated in 40 years. She got a deal on it but she’s already put in $25,000 and she hasn’t even moved in yet. If she was moving in 5 years- would she make that back? I don’t know. Of course, you could buy a completely renovated, move-in ready property and just have it painted (which, as we’ve discussed, also costs money.) The friend had the house completely painted and it cost her $3500 (just 1500 square feet.)
You act like renting and buying are the same thing- when they’re not. There are lots of costs to buying- which is why it boosts the economy.
“And those are about 8%. You’d still need rising housing prices to make any money (and that’s not including all the other costs of home ownership which we have covered here.)”
No one is talking about “making” money. It’s about spending less. The only question is, what costs less over the course of 10 years? Unless you are buying during a bubble, you will find that buying generally wins out.
Once again, for newbies here, check out the New York Times Rent vs. Buy calculator. The “advanced” settings lets you put in things like assessments if you’re buying a condo.
It gives you a pretty good idea of where you might stand if you’re looking to sell in a few years.
http://www.nytimes.com/interactive/business/buy-rent-calculator.html?_r=0
Well, you’re both right but it requires a financial analysis. That’s what this great tool is for: http://www.nytimes.com/interactive/business/buy-rent-calculator.html?_r=0 It all comes down to the assumptions you are working under. But to Chuk’s point…you’re outlook for home prices really is a wash as long as you have the funds to fill in the hole left by a potential loss of equity.
Hah!!! Great minds.
“You act like renting and buying are the same thing- when they’re not.”
If you get an interest only mortgage, they really aren’t that different. Biggest difference is risk/reward on equity.
haha rising rates… not for a loooooooooooong time! Gen X&Y will be in their 40’s and 50’s by then!
“Are you buying new appliances? New windows? Repairing that roof? If it’s a condo, you’ll have assessments and maybe some special assessments in those 5 years.”
And you don’t think your landlord is factoring that into your rent (and then some)? Do you think he is in the charity business?
Chuk, your point is well taken. However, there are a few landlords that are in the charity business but they just don’t realize it. 🙂
“Chuk, your point is well taken. However, there are a few landlords that are in the charity business but they just don’t realize it. :)”
Yup. The “accidental” landlords. But I imagine they are a small fraction of the rental market.
yeah I love the dopes that say “WUT ABOUT TAX TIME BOMB DURRRRR” and say that renting is the solution to avoiding property taxes… LOL
” Gen X&Y will be in their 40?s and 50?s by then!”
Um, Gen X is largely in their 40s now.
so they’ll be in their 50’s, whats your point…
“so they’ll be in their 50?s”
Gen X starts turn 50 in under 15 months. That’s not a loooooooooooooooooooooong time.
“whats your point”
Your time frame is so squishy as to be unfalsifiable. The front end of that period is 1/1/2015, when Gen X starts ‘being in their 50s’; the back end no earlier than 12/31/2050 when the last of the Y’s (using the earliest frequently used end of Y) stop being in their 40s.
“And you don’t think your landlord is factoring that into your rent (and then some)? Do you think he is in the charity business?”
My landlord just put on a $25,000 back porch. Am I paying for that with my $50 a month rent increase? Hell no.
NONE of the things you just cited can go towards raising the rent. Are you a landlord Chuk? The only things tenant will pay more for are things that enhance their own lives:
1. Put in Central Air! (check)
2. Washer/dryer in your own unit (check)
3. New kitchen appliances, preferably stainless steel (check)
4. New counter tops (granite) or cabinets (check)
5. New bathroom- including vanity and tub/shower (check)
That’s about it.
You gotta replace all the wiring because it’s 50 years old and shorting? What a shame. Not my problem as a tenant. You think that $1700 2/1 in Lakeview is suddenly rent for $2100 a month because you had to put in new wiring and nothing else has changed about the actual apartment?
Sorry.
Ha! I’m laughing my ass off here. You clearly don’t know WHAT you’re talking about and what a tenant will actually pay for. Oh- and most tenants are 25 years old and will just move every year anyway. The next tenant will come to look at it and say, “does it have stainless steel appliances?”
The upkeep and maintenance of the building is meaningless to ALL tenants. They don’t care about the sob story of the landlord and his having to fix the roof. That’s part of being a homeowner.
I’ve saved thousands of dollars in maintenance costs/assessments by renting. Properties are a money pit.
“haha rising rates… not for a loooooooooooong time!”
Mortgage rates are rising right now. I don’t know what you’re talking about.
The regular American can’t even handle a rise to 4.75%.
The whole economy is f*cked. Most people don’t even know it.
“My landlord just put on a $25,000 back porch. Am I paying for that with my $50 a month rent increase? Hell no.”
Maybe not today but you either paid for it over the last few years or you will pay for it at some point. Chuk’s point is that your landlord is not going to constantly lose money by being a landlord – unless he is irrational and as I indicated above some are irrational for extended periods of time. Renting can’t be a great deal for both the landlord and the tenant at the same time. In the long run it’s a fair deal for both but from time to time it can be a good deal for one at the expense of the other. And when renting is a great deal for tenants then rational people will choose renting over buying and the price of homes will go down and/ or rents will go up until it equalizes. We have seen that happen over the last couple of years where rents rose by 10% in one year. I know people whose rents got raised by something like 30% overnight.
“My landlord just put on a $25,000 back porch. Am I paying for that with my $50 a month rent increase?”
No. But I’m sure he is using some profits from your previous months rent.
“Are you a landlord Chuk?”
Yes
“The only things tenant will pay more for are things that enhance their own lives:”
You will pay for whatever he wants to charge for or leave. Period.
“I’ve saved thousands of dollars in maintenance costs/assessments by renting.”
No, you have paid for his maintenance by renting.
“You clearly don’t know WHAT you’re talking about and what a tenant will actually pay for.”
That’s comforting to hear coming from you. You are clueless.
” Renting can’t be a great deal for both the landlord and the tenant at the same time.”
This is correct. At least financially speaking. Maybe its a “good deal” for the tenant because they only need a short term place and they pay a premium by renting, but it’s better than buying and selling a place in 1 year. And it’s a “good deal” for the landlord because he is making money by charging more for rent than what his costs are.
Sabrina, do you think the entire rental business is some kind of loss leader? If not, then your argument makes zero sense.
“Mortgage rates are rising right now.”
Is that why you can get a 30 year at 4.125% and a 5/5 at 2.75% now?
“The regular American can’t even handle a rise to 4.75%.”
Did you even read the title of this thread?
Renting would have one slight advantage over buying in the long run and that would be due to the fact that through renting maintenance costs and common utilities become tax deductible. So presumably the tenant benefits from that to some extent.
“So presumably the tenant benefits from that to some extent.”
So does the landlord (ie, buyer).
“Mortgage rates are rising right now. I don’t know what you’re talking about.”
Except they have dropped from their recent upswing 2 weeks ago mortgage rates were 15bps higher than today, with the 10 year futures down from 2.97 2 weeks ago, to 2.68 today. There is insanely heavy resistance at 3% and I don’t expect that to be broken any time soon. This taper talk is dumb, the fed has said over and over they aren’t doing anything until 6.5% unemployment, which would put us around mid 2015 before they stop. At that point growth will still remain anemic and rates will stick around 0% for an extended period of time, this will keep mortgage rates low.
The only way mortgage rates are going to go up to any significant level is if incomes increase which would cause inflation or sharp uptick in gdp growth
“Renting would have one slight advantage over buying in the long run and that would be due to the fact that through renting maintenance costs and common utilities become tax deductible.”
A major advantage of owning is that you don’t pay any taxes on the implicit rent that you are “paying” yourself.
“And it’s a “good deal” for the landlord because he is making money by charging more for rent than what his costs are.”
Do you think landlording is a competitive business?
“Mortgage rates are rising right now. I don’t know what you’re talking about.”
It would appear you are confused. The penfed 5/5 ARM was 2.875% in April. It is 2.75% now.
“A major advantage of owning is that you don’t pay any taxes on the implicit rent that you are “paying” yourself.”
But the taxes that the landlord is paying is no different than the taxes they would pay on any investment and they are partly offset by the interest they pay on their mortgage.
“Do you think landlording is a competitive business?”
Absolutely. They have to charge competitive rents and it’s certainly competitive on the acquisition end of things. There are few bargains in the multi-unit buildings market.
“But the taxes that the landlord is paying is no different than the taxes they would pay on any investment and they are partly offset by the interest they pay on their mortgage.”
Suppose person A owns a $500K home outright (for simplicity). Return he gets on that $500K investment is being able to live in the home (yes, also has to pay RE taxes and upkeep). That return (implicit rent) is not taxed. Let’s say it would otherwise cost $30K/year to rent that home (net of the additional rent that would be needed to go to taxes and upkeep). That’s $30K of untaxed income.
Person B invests that $500K elsewhere and rents a similar home for which he has to pay $30k/year (net of taxes/upkeep). And let’s say he gets a $30K return on that asset (which would even be a home he is renting out). He has to pay taxes on that $30K of income, while still paying a full $30K of rent.
DZ, you make a good point. So the right way to think about this is that the renter is paying rent with after tax dollars and the owner bought the home with funds that would have earned pre-tax dollars. From a total system perspective the government gets more when someone rents. I should do a blog post on this.
There is one further complication though in that the landlord gets to depreciate the unit – of course that is recaptured at some point but then any major maintenance or improvements are either deductible or capitalized for further depreciation and in the long run that stuff is not recaptured.
“This taper talk is dumb, the fed has said over and over they aren’t doing anything until 6.5% unemployment, which would put us around mid 2015 before they stop.”
Sonies, I think you’re confused between “QE” and “the Fed Funds rate”. The Fed has had the 6.5% employment rate as the target for raising the Fed funds rate for some time. It has given no such target for ending QE. The Fed was going to taper in September. They made it very clear starting in May. They were preparing the global markets.
But apparently rising mortgage rates and an impending emerging market crisis freaked them out. There is no way the Fed can wait until 2015 to begin to taper. It would have $5 trillion on its books by then and the distortions in the economy would be massive. As it is we’re already back to bubble pricing in the coastal housing markets and stocks are massively inflated globally.
“The regular American can’t even handle a rise to 4.75%.”
“Did you even read the title of this thread?”
Rising mortgage rates take several months to impact sales as the buyers who had locked in previously low rates continue to purchase. Similarly, now that rates have eased back slightly, it will take months to see the impact of that easing. Since there are NO sideline buyers, those who are looking to buy and had locked in previously higher rates, will now be able to afford a little more house. Good for them. But it’s not going to increase sales any more than they already were going to be this month.
KB Homes, which reported today, doesn’t seem the least bit concerned about the combination of both rising home prices and rising mortgage rates.
“The fundamentals of the current housing recovery are firmly in place, supported by low inventory levels, an improving economy and positive demographic trends,” said Mezger. “Given these factors, we believe that the recent slower pace of the recovery caused by an uptick in mortgage interest rates is a temporary effect, and we expect to see steady upward demand for housing as consumers adjust to both higher rates and pricing. In balancing community count, sales pace and margin expansion in this environment, our revenues and net income improved substantially during the third quarter, while our net orders moderated. Nonetheless, we believe there is tremendous potential in our served markets and that we are well-positioned for future growth.”
This discussion had me going back to the New York Times rent vs. buy calculator to see how they handle things. Some of the inner workings are hidden – like the opportunity cost of your down payment. and your marginal tax bracket. Those are key components of the analysis and it doesn’t look like you can vary them. Too bad.
“Some of the inner workings are hidden – like the opportunity cost of your down payment. and your marginal tax bracket.”
Advanced settings, then ‘Other’, and you can modify both.
Ahhh. Didn’t think to look inside the Other tab. Thanks. That would be huge miss otherwise.
I would note that the marginal tax rate claims to be for the total of Federal, state and local taxes, but for some reason limits it to 50%, which doesn’t capture the top aggregate marginal in NYC, the home of that calculator.
“As it is we’re already back to bubble pricing in the coastal housing markets”
Maybe I’m missing where these markets are:
http://1.bp.blogspot.com/-UQW2-TbHUN4/UkGaIPmuTEI/AAAAAAAAcEY/Y827OH-_s44/s1600/CaseShillerCitiesJuly2013.jpg
keeping in mind that those are *nominal* values–to be at bubble pricing in real terms, would need to be ~16% higher than nominal bubble values.