Market Conditions: Junes Sales Sink 8.7% as Tight Inventory Slows the Market
Chicago housing inventory remains super tight.
From the Illinois Association of Realtors:
The city of Chicago saw year-over-year home sales decrease 8.7 percent with 3,087 sales in June, compared to 3,380 a year ago. The median price of a home in the city of Chicago in June was $312,750 up 2.0 percent compared to June 2017 when it was $306,750.
Thanks to G for the historical sales data:
- June 1997: 1,817
- June 1998: 2,214
- June 1999: 2,435
- June 2000: 2,513
- June 2001: 2,451
- June 2002: 2,590
- June 2003: 2,891
- June 2004: 3,752
- June 2005: 3,850
- June 2006: 3,557
- June 2007: 3,127
- June 2008: 2282
- June 2009: 1981
- June 2010: 2526 (tax credit sales)
- June 2011: 1841
- June 2012: 2246
- June 2013: 2729
- June 2014: 2846
- June 2015: 3202
- June 2016: 3321
- June 2017: 3380
- June 2018: 3087
Here is the monthly median price data:
- June 2008: $309,945
- June 2009: $242,050
- June 2010: $234,250
- June 2011: $207,000
- June 2012: $216,700
- June 2013: $254,900
- June 2014: $275,000
- June 2015: $288,250
- June 2016: $299,900
- June 2017: $306,750
- June 2018: $312,750
“The spring market has carried its upwards climb into summer with median sales price hitting a five-year high,” said Rebecca Thomson, president of the Chicago Association of REALTORS® and principal of Thomson Real Estate Group.
“The increasingly limited inventory makes for a competitive market with faster sales and increasing prices. Buyers are entering a competitive market where turn-key homes are in high demand. Sellers need to stage and price strategically as the overall number of closed sales continues to shrink.”
The average 30-year mortgage rate was stable at 4.57% down slightly from the average of 4.6% in May. It was still considerably higher than the 30-year average of 3.9% in June 2017.
“Compared to the same month last year, prices continued to move upward but sales declined,” said Geoffrey J.D. Hewings, director of the Regional Economics Applications Laboratory (REAL) at the University of Illinois.
“However, there appears to be increasing sentiment that supply shortages are dampening market activity. The Fannie Mae Home Purchase Sentiment Index fell after reaching new highs, reflecting consumer uncertainty about income growth and the economy in light of potential trade wars.”
Statewide inventory fell 6.7% to 58,133 from 62,309.
The statewide selling average fell to 44 days from 49 days in June 2017.
A year ago, the IAR was attributing June’s slow sales to tight inventory. But inventory is even tighter just 12 months later.
Is tight inventory the new reality in the years ahead as rates rise and sellers become reluctant to move?
Should buyers simply get used to it?
Illinois home sales down in June [Illinois Association of Realtors, Press Release, July 23, 2018]
Inventory did decline somewhat from last year. Interestingly though, condo/ townhome inventory rose while SFH inventory dropped quite a bit. And, yet….prices are not moving up that much except in select segments.
Definitely not dead though 3k sales is above average I would say?
Buyers should get used to it because construction, labor, outdated code (flex pipe still not allowed for electrical wiring), and permit costs make building in Chicago expensive compared to incomes. The only projects that get built are luxury becuase it allows builders to eek out a profit and subsidized housing becuase the gubment is paying inflated prices. With property taxes and water fees increasing drammatically over the last two years and with more to come after the election, prices will stagnate in neighborhoods that aren’t trendy or up and coming.
He’s right, lumber alone is up 40% yoy. The construction inflation is accelerating.
We always look at data from only one side, analyzing only supply, which is not correct. It is much harder to analyze demand. I wish there was a data somewhere, that would compare numbers of potential homebuyers, willing and able to buy, and track historic changes of this number. There are fewer buyers today, and huge increase in renters.
My feeling is that number of actual buyers shrunk significantly in the past couple years, compared to 10 years ago, hence making demand weaker. Inventory might look smaller than few years ago, but in correlation with active buyers, if hypothetically there was a 1 buyer/3 properties in 2014, now it is 1 buyer/6 properties, just because there are fewer buyers. I do see smaller numbers of buyers on the market, and I’m not alone – owners of apartment buildings are thriving on the same trend.
Today’s buyers are selective, expect perfection, only want the most updated units, don’t want 15 years old kitchens, therefore increase in average sales price does not really reflect appreciation. Average prices are higher, because buyers purchase highly upgraded condos, that cost more, and take a pass on 2000 – 2006 style homes, that are not up to their tastes. If we subtract costs of renovation done to these homes, that will leave almost no appreciation for the unit itself. There are hundreds of condos, that are sitting on the market since March-April or even earlier, still unsold… Interesting market, very different from a few years ago….
“Today’s buyers are selective, expect perfection, only want the most updated units, don’t want 15 years old kitchens, therefore increase in average sales price does not really reflect appreciation. Average prices are higher, because buyers purchase highly upgraded condos, that cost more, and take a pass on 2000 – 2006 style homes, that are not up to their tastes. If we subtract costs of renovation done to these homes, that will leave almost no appreciation for the unit itself.“
This is a great post and something I have noticed as well. My sense is that most of the would be appreciation has instead gone towards the substantially increased taxes over the past 5 years. Yet here we are and most people don’t seem to recognize that the market here is generally fairly stagnant.
It feels to me like we are in for a few more years of this as the trend of younger people renting longer shows no sign of decline.
That’s what I’ve noticed too — I’ve been watching some houses and condos for various reasons, and while some sell fast, others linger, so shortage doesn’t mean buyers are willing to pay more or compromise a lot, probably because the strong preference for buying over renting is no longer a thing.
My only quibble is that I do think people realize the market is stagnant. And prices have gone up some on the lower end and in some neighborhoods — a younger friend of mine is complaining that he missed his window to get something good for $200K, vs what existed just a couple of years ago, and I’ve seen a big change in what a house needing a big reno goes for in Avondale (probably flippers). But with the kinds of properties more commonly featured here, I agree that demand seems weak.
Is there a clear trend towards more renovations done by flippers and less renovations are done by homeowners?
I think it’s always been the case that many buyers don’t want to renovate. They only want updated. First-time buyers have traditionally been the renovators.
I think a lot of first time buyers at this point aren’t the same early to mid 20’s buyers of the past that will buy something that needs a lot of work and put the time into doing that over the course of 5 years or whatever. I’ve heard a bunch of “I’ve waited this long to buy, I don’t want to buy something that’s going to take me a few years and a bunch of work to make a nice.” Or they just don’t have the time or desire to put any work in outside of their 9-5’s.
So people just keep renting or they wait / are willing to pay more for something that’s “finished.” And that’s part of why you see this clear preference for “finished” properties, and why all of these price indexes’s that show RE in Chicago are not properly factoring in the amount of money that’s been put into these places to keep them up with current standards.
I would love to see an apples to apples comparison of prices over the past 4-5 years in Chicago. I’d guess we’ve seen very minimal true appreciation outside of gentrifying areas or the West Loop.
“I would love to see an apples to apples comparison of prices over the past 4-5 years in Chicago.”
Case Shiller does attempt to exclude and/or downweight renovated properties. So, we have the CS-home index (seasonally adj) at the Apr-04 level, and only up about 13% from Apr-13 to Apr-18 (latest). AND those numbers are NOT in real dollar terms, so adjusted for CPI, CS-homes (seasonally adj) in Chicago have finally recovered all the way to fall-97 real dollar prices. And that’s the ‘high tier’
Sure, the homes data skews toward the burbs, what about the condo index:
there was a big pop in ’13, from 111 in Apr-13, to 129 in Apr-14 (16%), but since 14, it’s only up about 15% (apr to apr). And in real dollars, we’re basically at fall-99.
Does that account for people that do moderate renos of kitchens, bathrooms, floors, whatever? It feels like those types of things have happened on a larger scale over the past 5 years because of what the market now dictates. Can they really back all of that out of the data?
“I’d guess we’ve seen very minimal true appreciation outside of gentrifying areas or the West Loop.”
Exactly what I’ve been saying for a while now. I see it all the time when we look at individual homes that go on the market.
“He’s right, lumber alone is up 40% yoy. The construction inflation is accelerating.”
Thanks to Trump.
“Can they really back all of that out of the data?”
All of it? No, of course not. Most of it? Probably.
The 13% over 5 years is 95 bps annually over inflation.
For comparison, the national, 10-city and 20-city composites are up 33%, 34% and 37% over the same 5-years.
10-city is metros of Boston, Chicago, Denver, Vegas, LA, Miami, NYC, San Diego, SF, DC
20-city adds Atlanta, Charlotte, Cleveland, Dallas, Detroit, MSP, PHX, Portland, Seattle and Tampa.
*Cleveland* has done better over that 5 years–up 16.6%. Chicago is basically as flat as it is possible to be, given the overall resi real estate market.
Those comparisons are what I find puzzling.
I get NY and SF and Seattle, of course, add Boston and DC and some others. Limited land, different demand vs. supply.
I also get people no longer think buying is necessarily better than renting.
But why is Chicago so flat even when compared with places like Cleveland?
A decent sized portion of Americans live month to month with their expenses. You can get a home for as little as 3% down if you pay the PMI. Prices haven’t increased all that much becuase property taxes are up substantially. 20 years ago taxes might have made up only 10% of tr monthly nut. Now they make up 30% of the monthly nut. Of course prices are going to stagnate when that is the case.
Long time poster, been away for a while. Reviewed some recent posts, glad to see it’s mostly focused back on real estate and the haters for the most part have gone elsewhere.
The market is still hot despite the dip in sales especially in the suburbs. Anything reasonably affordable resulting in payment less than $3,000 a month is on fire. I’ve seen quite a few deals come across my desk where the property goes under K in less than a week. Languishing properties either have major problems, or, are simply priced too aggressively.
“My feeling is that number of actual buyers shrunk significantly in the past couple years, compared to 10 years ago, hence making demand weaker. ”
I disagree. 10 years ago the market was crash crash crashing and no one was buying. The primary reason may have been that few people were able to get mortgages and that along with precipitously declining prices scared everyone away.
2008 was the middle of the recession and realtors were literally getting ready to jump off buildings just as the stock brokers of 1929 were doing during the stock market crash. The data above shows that there were 2282 sales in 6/08 and over 3,000 6/18. It kept getting worse as you can see the 6/2009 data shows only 1981 sales. It barely picked up in 6/2012 with 2246 buys and that was arguably the best time for a homeowner to buy real estate in Chicago in most of our lifetimes.
Regardless, I have always been the biggest naysayer over the years (you can look at 10 years of past posts) and as I said a few months ago, I don’t think the Chicago market is in a bubble. A bit frothy maybe, but I see solid underwriting, sustainable incomes, mostly reasonable expectations from buyers and sellers.
“Now they make up 30% of the monthly nut. Of course prices are going to stagnate when that is the case.”
My taxes are only $7,000 and my relatives in other states think I’m crazy for paying that much. And my taxes are actually cheap compared some of my friends who have bills that are $10,000 or more for arguably middle class properties. It’s crazy actually. And taxes are about to shoot up significantly as the new assessor (the guy who won the primary) is going to under assess lower value properties and over assess higher value properties.
I think this time of year in general is pretty slow isn’t it gary? Especially with the weather being so nice and people finally having enough money to take summer vacations and all that?
btw, using the historical CPI+50bp growth in Chicago real estate prices, the CS index implies that we’re about 10% below trend based on 1999 prices.
And I would assert that that gap is mainly about property taxes at this point.
I wonder if there are statistics on same-home value appreciation since the early or mid-1980s, rather than the usual stats that start with the beginning of the boom. In shopping around for an apartment last year, I was initially surprised by how little condos and coops in the Gold Coast have appreciated since the early 1980s. When I started thinking about it, though, I realized that the same can be said for a lot of places I’ve lived around the US. Prices zoomed up for a while in the ’80s, then stayed flat (or crashed) while incomes caught up, then zoomed up again in the late ’90s, early ’00s.
“I think this time of year in general is pretty slow isn’t it gary?”
Contract activity peaks a lot earlier than people imagine. It’s in March. Then it falls off slowly but steadily through December. June is not a bad month though – typically in the top half of the months of the year.
“I wonder if there are statistics on same-home value appreciation since the early or mid-1980s,”
Case Shiller starts 1/1/87 but I think Robert Shiller’s home price analysis goes back to the 1800s if I recall correctly.
I look at nominal prices because that’s what people relate to and you borrow nominal dollars to buy a home. I’ve got my own trendline based on the pre-bubble years and Chicago lost a lot of ground during the crash. We are 25% below that trendline.
Now we’ve debated here about whether or not that trendline could be extrapolated because inflation was a lot higher pre-bubble than it is now. However, other housing markets have been appreciating much faster than Chicago’s.
“Case Shiller starts 1/1/87 but I think Robert Shiller’s home price analysis goes back to the 1800s if I recall correctly.”
On a national basis, yes, back to the 1800s. For Chicago, specifically, 1970-1986 can be found in this article:
http://www.nber.org/papers/w2393.pdf
Very cool. Thanks!
“Contract activity peaks a lot earlier than people imagine. It’s in March. ”
Which means the property is listed “AFTER THE BIG GAME!”
this graphic of Inflation-adjusted Case-Shiller indexes shows Chicago flat to inflation for the last 30 years:
http://www.realestatedecoded.com/case-shiller-home-price-index-real-estate-bubble-view/
Shiller says in the paper anon cites: “Over the 16 years [1970–1986], we found annual real [after-inflation] appreciation rates of 0.2 percent in Atlanta, 0.3 percent in Chicago, 2.2 percent in Dallas and 4.3 percent in San Francisco” — so real prices in chicago have been roughly flat for the last 50 years, probably longer.
Denver, Seattle and Portland are the boom towns, making new ‘real’ highs, though san fran is still awesome.
“Chicago flat to inflation for the last 30 years”
C’mon, it’s up 21.23 bps over inflation per year. That adds up to a 53% real dollar increase over 200 years. Nothing to sneeze at! Because you’ll be dead, and unable to sneeze.
I have a book (written in the 30s, I think) that analyzes housing prices in different Chicago neighborhoods over the years. It was quite interesting, but of course I can’t recall the name so as to link it — need to find it at home.
Here’s an analysis of why prices are flat currently: http://www.chicagobusiness.com/article/20180330/ISSUE01/180329888/why-are-metro-chicagos-home-values-so-weak
It does make me wonder if Chicago’s total numbers are affected by inconsistency by neighborhood more than in some other places.
I’ll guess it’s Hoyt’s ‘One Hundred Years of Land Values in Chicago’ (1933).
https://archive.org/details/onehundredyearso00hoytrich
“I have a book (written in the 30s, I think) that analyzes housing prices in different Chicago neighborhoods”
Yes!
Just posted my July real estate market update. IAR will report a 1.1% increase in sales but it’s really more like 4.1%. Inventory is obviously a limiting factor though condo inventory is actually rising.
http://www.chicagonow.com/getting-real/2018/08/chicago-real-estate-market-update-july-home-sales-beat-last-year/
curious gary as I can’t seem to find a definitive answer on this, is average market time calculated to under contract or close date? I would guess under contract but not sure
It’s to contract.
I took an in-depth look at how quickly homes have been selling this year. This analysis goes beyond mere averages of market time and looks at the distribution of sales times and also how many homes get pulled from the market: http://www.chicagonow.com/getting-real/2018/08/chicago-real-estate-market-how-fast-homes-have-been-selling-in-2018/
And I considered a home sold when it went under contract.
Homes are actually selling a bit slower than 2 years ago when I last did this analysis.
Thanks Gary. All the data nationally is pointing to a slowing housing market despite the low mortgage rates and the great job market.
On the coasts, people are simply priced out. Here in Chicago, the anecdotal stories I’ve heard are: the properties listed aren’t the dream so the buyers are willing to wait to get what they want. There’s absolutely NO urgency, even with record low inventory.