Market Conditions: Is Tight Inventory Keeping Sales Depressed? April Sales Fall YOY
The Illinois Association of Realtors is out with the April sales data:
The city of Chicago saw a 4.4 percent year-over-year home sales decline in April 2017 with 2,586 sales, down from 2,706 in April 2016. The median price of a home in the city of Chicago in April 2017 was $297,150, up 3.9 percent compared to April 2016 when it was $286,000.
Here are the sales statistics for April since 2007:
- 2007: 2419 sales
- 2008: 1886 sales
- 2009: 1407 sales
- 2010: 1984 sales
- 2011: 1466 sales
- 2012: 1816 sales
- 2013: 2392 sales
- 2014: 2256 sales
- 2015: 2435 sales
- 2016: 2706 sales
- 2017: 2586 sales
Here are the median prices:
- 2007: $289,800
- 2008: $300,000
- 2009: $218,000
- 2010: $225,000
- 2011: $169,000
- 2012: $184,400 (IAR says it was $182,000 but I have $184,400 from last year’s data)
- 2013: $223,500
- 2014: $250,000
- 2015: $271,325
- 2016: $286,000
- 2017: $297,150
Sales might have dipped year-over-year but 2016 saw the highest number of April sales in 8 years so it was going to be hard to top that with the current inventory.
“With the spring market underway, buyer demand has not abated in the least,” said Matt Silver, president of the Chicago Association of REALTORS® and partner at Urban Real Estate. “Rather, increased competition for homes that are priced well and move-in ready will continue to drive prices upward. Both motivated sellers and buyers should be prepared for these conditions to continue in the coming months.”
“Sellers flooded the market in March, and as a result inventories were struggling to keep pace with demand in April,” said Illinois REALTORS® President Doug Carpenter, ABR, AHWD, GRI, SFR of Mokena, managing broker of Coldwell Banker The Real Estate Group in Orland Hills. “It’s clear from the relatively short average time to sell that buyers really do want to find a home. The problem is they are having to work much harder to find one that meets their criteria due to a shortage of options.”
The number of days on the market dropped to 61 days from 68 a years ago statewide.
The average 30-year mortgage was 4.05% versus 3.6% a year ago.
The U of I housing expert voiced some caution about the market statewide, however, due to recent job losses statewide (Caterpillar layoffs?).
“While sales will continue the usual early summer upward growth, there are some sharp differences in the forecasts for median prices” said Geoffrey J.D. Hewings, director of the Regional Economics Applications Laboratory at the University of Illinois. “The forecasts for median price indicate continued positive changes, but the REAL Housing Price Index (HPI), which compares specific housing characteristics, suggests declines and may also be reflecting the employment losses in the state over the past two months.”
The hot housing market continued into May as inventory remains low.
Have you been involved in a bidding war? How far are you willing to go to “get” a home?
Illinois home prices increase in April; Sales lower amid tight inventory [Illinois Association of Realtors, Press Release, May 24, 2017]
We recently moved back to Chicago in the Fall from another expensive city and found the per square foot pricing attractive. At the same time, we’ve learned a few things since. Many of the buildings are horribly constructed (2000-2008 split face block), many units are very dark, and inventory is tight. In our upper mid yuppie price range for a 3bd in prime areas, there’s massive limit and we’ve placed several offers which were all 4-5 competing offers even before the first open house, getting past the asking price.
Then again tons of crappy, less desirable properties (split face block, dark low ceiling townhomes, first floor basement duplexes) sit on the market for a long time untouched, pretending they don’t need to drop the price significantly.
We’re waiting and watching and buying gold and silver instead. The IL budget and bankrupt pension funds and volatile population dynamics give us comfort to sit on the sidelines.
“We’re waiting and watching and buying gold and silver instead.”
You lost me here.
Gold and silver? With stocks in a big bull market?
Yikes!
hedge when you can not when you have to
@Mike: I found the exact same thing when I was looking for a two bedroom in my desired area. There was literally zero new inventory most weeks. When there was anything decent put on the market, there were multiple offers way above asking price after the first day of the open house or like you said, before the open house. I finally found a place. It was on the market one hour. My realtor made an appointment immediately. We viewed it and I made an offer of asking price within two hours of it being published online. The real estate market is wacky right now.
Not many 3bd in prime areas. Lots of 2bd. Much better ROI for builders and rehabbers for 2bd.
“hedge when you can not when you have to”
GOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOLD!
Don’t know about buying up gold but i’d sure as heck hold onto my real estate money right now. Either put something into the market or be safe.
But as everyone always says, doctors are classically stupid with money. At this time, I choose to hold and wait.
* I meant stable stock market stock . Not real estate market.
Curious – what are your Prime Areas? And your price point? I’ve seen AND sold some pretty nice 3 bedroom places this year but maybe not prime. Curious to know what is Prime? Thanks!
Sara: Lincoln Park, Lakeview, and Gold Coast. We’re also annoying that want to be ‘near the lake.’ We’re ‘we want it all’ types that can’t / won’t pay 1.5-2mm. somewhere 600-800k.
We’re relatively young, so Wicker Park and Bucktown would seem a nice fit, but the schools are miserable and we’re past our experimental tasting menu and wine bar days, don’t need to feel cool anymore. Some of these 1m+ buyers are comfortable in west town with cameras installed on their front door because “organic restaurant frontier” and 30-40% dropout rates from the local high school, but I’m not interested in that.
We are a young couple without kids yet, relatively young, and both successful professionals. Our landlord for our doorman high rise apartment just agreed a repeat of our rent last year (no increase), so it’s hard to understand who these desperate buyers are these days.
We’re mobile with cash, and that’s a lot better than weighed down with peak level properties (even if not ‘inflation adjusted’) and the absolute inevitability of tax increases in every direction, service cuts, and ultimate long term failure to uphold liability promises. It’s a shame because Chicago is truly a gorgeous city.
Given all that sauciness and attitude, however, we’re actively watching and looking, and will be willing to buy in 2-3 years for 10=20% less than today, as we can afford to be cash buyers when the bankruptcies and foreclosures tick up.
What amazes me about these buyers now, is let’s say someone makes 200k a year, wants to buy anywhere in the 500k+ range. The state income increase from 3.5% to 5% means an extra $3k a year less in cash, or interest on about $100k of mortgage. So assuming 25% of transactions are cash, that would make me think the 500k-1m properties should decline in price 50-75k on this expectation alone. Add another 1% in the next 2 years to interest rates, and what’s the point of squeezing into a mortgage with a low rate if the parity for house prices will need to adjust for affordability in the long term anyways?
Government synthetic asset inflation always comes home to roost.
Interesting – thank you for sharing. I’ve just put a family in a 3/3 duplex in the gold coast for $620k and a young single guy in a 2/2 with killer views and top-quality updates (which is not the same as white white and white, it actually is an excellent renovation with quality finishes and workmanship) for $822k with 2 garage parking, also GC. There’s a place for everyone. The right one for you may not be on the market at the moment. Keep your eyes open, it will show up! And kudos for being financially reasonable. Want, need and can afford are all different creatures. FYI I’d say your landlord is the smart one, I don’t believe the high rents are sustainable, especially when you consider how many of those cranes are based in rental high rise buildings, combined with the de-condoing of several buildings to rentals. Why a developer would want to join that caravan at this stage in the game is beyond me. Your landlord has a known quality renter, no costs associated with you staying, and must be making enough to be satisfied with the ROI. Why be greedy when satisfied feels so good?
“The state income increase from 3.5% to 5% means an extra $3k a year less in cash, or interest on about $100k of mortgage. So assuming 25% of transactions are cash, that would make me think the 500k-1m properties should decline in price 50-75k on this expectation alone.”
The top state tax rate in California is 11%. That has never stopped home prices from rising. And I don’t think the last state income increase here in Illinois a few years ago impacted home prices either.
Most people get 1.5% to 3% pay increases most years (especially well paid professionals.) In a jobs market where there are 5 million job openings and the unemployment rate is 4.3%, employers don’t want to lose people. Those increases will be there.
Mike, also don’t underestimate the large number of people around downtown that can afford properties in the 600-800k range. Once you’re over a million dollars the market is better because less people can afford it. To afford something in the 600-800 range a young couple needs to make what, 120-150 each? 250-300 together at most? That’s a huuuuge population of young married professionals in the city – pretty much every other engineer, lawyer, senior consultant, or doctor.
I didn’t realize the number of people competing in this price range until my brother started looking – he’s trying to stay in 500-600 range, which is an even harder market.
Riz your affordability calculations are extremely conservative. Someone does not need to make anywhere near what you state to qualify for a 600-800K property, especially if all of the other factors line up. (Minimal preexisting debt, at least 20% down, low interest rates, adequate reserves)
Using the 36% of gross income guideline you often see, at 250K that’s 7500K a month which easily supports properties in excess of 1M, even with a hefty assessment and taxes, provided a significant down payment.
Just saying what is possible and can/does happen, not what is advisable.
“Riz your affordability calculations are extremely conservative. Someone does not need to make anywhere near what you state to qualify for a 600-800K property, especially if all of the other factors line up.”
Was thinking the same thing.
Not that that isn’t the “smart” approach to afforadability, it just isn’t really the common approach for those with 250k incomes and $150k+ in DP cash.
“Given all that sauciness and attitude, however, we’re actively watching and looking, and will be willing to buy in 2-3 years for 10=20% less than today, as we can afford to be cash buyers when the bankruptcies and foreclosures tick up.”
This is more wishful thinking than anything and not really rooted in reality. The time for a 20% decline was 6-8 years ago, long before you were even looking. If there’s anything we’ve learned from the current boom, it’s that all of the income increases and wealth gains have gone to the ‘rich’ like you and I and many others who post on this board looking for $600k GZ properties. Many of the professionals just like yourself don’t live on the edge financially like the mortgage brokers, real estate agents and ‘investors’ of the 2002-2009 time period. I’m not usually one to be a bull in this market, but I learned a lot living through the GFE in 2008, and things are a little different this time. I think the big price declines won’t come as much at the top in the GZ markets but rather at the low end, for the $150k townhomes in Skokie that will easily lose $30k in value when lending standards tighten.
“learned a lot living through the GFE”
???
“I think the big price declines won’t come as much at the top in the GZ markets but rather at the low end, for the $150k townhomes in Skokie that will easily lose $30k in value when lending standards tighten.”
The lending standards are MUCH tighter this time around. And the housing market isn’t in a speculative bubble. In order to have a 20% price crash I would need to see more fraud and whatnot like we saw last time. So far, it’s not really happening.
What I think is likely to happen is that when rates finally rise, the market is going to stagnate for several years with basically no price gains which will be equivalent to falling due to inflation.
Also, real estate “crashes” are rare. They are a once-in-a-lifetime event happening every 70 years.
That doesn’t mean the Fed isn’t reinflating the housing market and that prices aren’t getting frothy. But until I see the bus loads of people looking to buy and flip again, then I don’t think we have the market conditions to see a 20% decline. A normal recession doesn’t get you a 20% decline. A depression does- but those are rare.
Recessions are caused by excesses in the market. Not seeing much of that right now.
“In order to have a 20% price crash I would need to see more fraud and whatnot like we saw last time. ”
The low end of the market is filled with people with 600+ credit scores, 3% down payments and a job. All it will take is recession with a job loss to send this portion of the market over the age. Like I said the other day, $80k townhomes in the ‘burbs were selling for $180k the other day because the banks have resumed making loans to people with previous foreclosures and bankruptcies. I personally have friends who had their foreclosures/BK’s fall off their credit reports less than 1 year ago and they’ve already purchased a new home. These people can’t help themselves to make poor financial decisions, mainly at the lower end of the market. Recessions almost always lead to mass job losses, again, often in the lower end of the market, and many of these people are homeowners but still living paycheck to paycheck.
Thanks everyone, cool to see relatively balanced conversation here. I suppose 20% is a bit of a stretch, but given that since even a year ago, it appears that my described bracket of real estate is up 5-15% depending, I don’t see how the ebullience of herr trump won’t eventually fade. And sorry for the anonymous snarky / trolling. kind of irresistible in the online forum.
anyways, the fundamentals are such – divided unequal society, bankrupt government, insane crime, and late business / central bank inflation cycle – which side would you rather be on, own risk assets or carry cash?
I get advice to buy, except from people who bought 3-5 years ago, and aren’t staring at the abyss of today’s ultra optimistic prices. Financial conditions and therefore sentiment do and will change. And as gold is actually outperforming the S&P 500 since jan 1. I know optimism and positive attitudes are the correct long term strategy, but when looking into the abyss, you don’t just gape and fall.
“What I think is likely to happen is that when rates finally rise”
“Also, real estate “crashes” are rare. They are a once-in-a-lifetime event happening every 70 years.”
rates could possibly not raise for 70 years too!
As things look today, I see modest prices declines the next recession at the top, and larger at the bottom. However, I cannot predict when the next recession will occur, nor can anyone. In fact, recessions are determined retroactively, after at least two quarters of negative economic growth. Right now I can see things are hot hot hot out there in the labor market. There are ‘help wanted’ signs everywhere these days, everywhere you go, and I know of lots of employers looking to hire too. Good time to be working, although income gains are all going to the top.
“I know optimism and positive attitudes are the correct long term strategy, but when looking into the abyss, you don’t just gape and fall.”
I’m just curious Mike. How long do you intend to wait for prices to decline? 1 year? 2 years? 5 years?
Also- what if rates rise substantially during the time you are waiting? (Sonies may be right and we will not see higher rates for another few decades- but who knows)
Won’t your out of pocket costs essentially be the same if you wait for prices to fall but rates rise? (also- remember- Chicago housing prices have never fallen during regular recessions. They have gone flat for up to 6 years though.)
Price declines in housing are rare- in Chicago or nationally.
The low end of the market is filled with people with 600+ credit scores, 3% down payments and a job.
This isn’t fraud HD. This isn’t fake appraisals or anything of the sort. We are not seeing anything like we saw by 2006-2008. Maybe we will as this cycle continues, who knows? But right now, the speculation and fraud aren’t there.
As for massive job losses in a recession, there’s no doubt that there will be job losses. Depends on the recession. Were there “massive” losses in 2000-2001? Only if you were in Silicon Valley. And lending standards were loose then and there weren’t masses of foreclosures.
It’s dangerous to apply your experiences in what was basically a depression with what will happen in a “normal” recession.
Recessions are caused by excesses. That doesn’t really exist in the economy…yet.
Posted my monthly update today. May had a weak sales gain – up 3% – which IAR will report as a decline in 2 weeks. Inventory continues to be holding the market back. http://www.chicagonow.com/getting-real/2017/06/chicago-real-estate-market-update-may-home-sales-eke-out-small-gain/
Sabrina, that’s a worthy point. If Chicago weren’t facing helter skelter as is obvious but in denial, it would possibly more resemble the manias of Toronto, Sydney, Hong Kong, San Fran, and Shanghai as it relates to real estate. Simply put, I beg to differ, and I have an alternative to available negotiated agreements. We can act without need of financing and can handle minor to medium construction and renovation work, so the bread and butter readiness for when the mass psychology changes.
But despite my doom glorification, reality and daily life are linked, but different, from financial markets and conditions, so it is fallacious for me to associate financial conditions over the ‘need for a home.’ as my wife would warn. Somewhere in the middle, we’re simply choosing not to get in the water right now. Rates rising would be lovely for us.
“so the bread and butter readiness for when the mass psychology changes”
What will cause the mass psychology to change? Even a near depression only stalled America’s love affair with housing for about 5 years. It’s completely back to the “buy now or be priced out mantra.”
With the kind of price increases people are getting again, they’re more in love with housing than ever.
As long as you’re ready to wait a LONG time (years)- then more power to you. Signs of the last bubble were evident as early as 2003 but it didn’t bust for another 5 years. And even after the bust it took another 4 years for prices to bottom. So you would have been waiting 9 years a decade ago.
“Inventory continues to be holding the market back.”
It’s a tale of two markets.
Inventory under $500k is scarce. Anything at this price point sells quickly.
If you’re priced over $600k, it’s sitting much longer. I’m surprised by the lack of sale on many properties in River North, Gold Coast and Lincoln Park. Perhaps I’ll cover some of these next week. They’re not selling in a week anymore.
Of course it’s anecdata but we just sold a ~$700K condo in a 4 unit building in East Lake View in 5 days. I’m convinced that we had it priced about right – and when I say priced right I don’t mean to sell in 1 day with 4 offers.
“I’m surprised by the lack of sale on many properties in River North, Gold Coast and Lincoln Park. Perhaps I’ll cover some of these next week. They’re not selling in a week anymore”
Know a guy whose stunning 360 degree lake and skyline view 3 bd in prime gold coast building sat for months on the market with few showings. Had to pull it and rent it out again but this time it rented 20% lower than it did 4 years ago. Thats all need to know about this “market”.
In spite of all the press about low inventory I continue to find buyers who want to offer 20-25% below list price and “are willing to keep looking til they find a deal”. Since I am not willing to waste my time in a search for unicorns I’ve cut a few buyers free this year – more than any previous year. I’m willing to go through one “learning experience” but after that it’s shame on me. On the other hand, if a condo is sitting on the market, it’s priced too high, plain and simple. It doesn’t matter how fabulous it is. If you want to sell you have to find a willing buyer – if you’re priced so high you aren’t even getting showings – well DUH, keep renting!