Market Conditions: Sales Fell 8.3% Year Over Year in January Continuing 2014’s Trend
January 2015 continued the trend that was noticeable throughout the fall and winter of 2014, and that was declining housing sales.
Remember, last winter was the polar vortex with record cold blasts and the second highest seasonal snowfall ever.
This January closings, for the most part, would have gone under contract in November and December of 2014. Chicago recorded no snowfall in December and moderate temperatures.
From the Illinois Association of Realtors:
The city of Chicago saw sales of 1,295 homes in January 2015, down 8.3 percent from last year. The median price of a home in Chicago was $222,000, up 11.0 percent over January 2014.
Sales Data Since 2006 (thanks to G for the older data):
- January 2006: 2009 sales and median price of $258,000
- January 2007: 1850 sales and median price of $279,900
- January 2008: 1203 sales and median price of $290,000
- January 2009: 918 sales and median price of $205,000
- January 2010: 1237 sales and median price of $195,000
- January 2011: 1034 sales and median price of $150,000
- January 2012: 1123 sales and median price of $149,000
- January 2013: 1521 sales and median price of $157,000
- January 2014: 1383 sales and median price of $200,750
- January 2015: 1295 sales and median price of $222,000
“Families and professionals have a strong desire to buy a home yet a full market recovery continues to be stalled by the limited homes for sale. Buyer demand on lower inventory is pushing up prices to offer sellers an incentive,” said Hugh Rider, president of the Chicago Association of REALTORS® and co-president of Realty & Mortgage Co. “With the winter thaw, we expect to see increased market growth as more homebuyers and homeowners see the opportunity to make the most of currently low interest rates.”
“Once again prices and sales moved in opposite directions in January with the sales decline attributed to a lower completion rate for homes under contract in December,” said Geoffrey J.D. Hewings, director of the Regional Economics Applications Laboratory at the University of Illinois. “In addition, foreclosure sales declined while sales of regular properties were almost the same as January 2014.”
Mortgage rates remain considerably below last year’s level. The average 30-year mortgage was 3.66% in January 2015 compared to 4.46% a year ago.
In January 2014, the IAR blamed the weather for the decline in sales. But sales declined every month last year except one.
What’s the excuse this year?
Illinois sees double-digit gains in median home prices in January [Illinois Association of Realtors, Press Release, February 23, 2015]
Sorry for the delay in getting the January sales data up. I’m still on vacation and the wifi isn’t that great.
I noticed I was also on vacation this time last year. What a coincidence (different location though.)
It’s interesting that the IAR’s only spin on January’s data is that the median home price is rising. Can’t tout falling home sales because that’s not a “good” sign.
Last year, they could blame the falling sales on the weather (and rightly so.) But this year? Um…yeah. Not so much.
The median home price is misleading. Why focus on it? It’s just an indication of what is selling. That is it. If more people buy in Lincoln Park than buy in Galewood, sure it’s going to go up.
And with the stock market continuing to make new highs nearly every day, I’m sure that IS what’s happening.
The market conditions couldn’t be more perfect for homebuying than they are right now.
1. Near record low mortgage rates
2. Unemployment around 5.5%
3. Record highs in the stock market
What will cause the housing market to improve further if not these things?
This housing market is sick indeed.
Why isn’t anyone addressing the elephant in the room?
Prices are still way too high. Incomes aren’t rising fast enough. It’s still unaffordable for the average Chicago family.
“The median home price is misleading. Why focus on it? It’s just an indication of what is selling. That is it. If more people buy in Lincoln Park than buy in Galewood, sure it’s going to go up.”
This is a common trope here, but could you please think through the statistics? The whole point of using the median is that a few more high priced sales in Lincoln Park don’t affect the number.
In the crash, the median price dropped for two reasons: home prices themselves dropped and vast swathes of low priced housing in the form of foreclosures came on the market which were a significant enough quantity to affect the median. The extreme drop from 2008 to 2009 is probably due in large part to the latter. And then the distressed properties exited the market- around 2013 by my recollection.
So, why the rise in median prices? By definition, it’s not the $10M house in Lincoln Park or the less than 35 sales in Lincoln Park in January that affected anything (my number is for the Lincoln Park Elementary school district, but the point is the same no matter how you define it). If it’s a mix shift, it has to be a massive one- much more than 35 sales can explain.
Or it’s actually rising prices.
The drop in absolutely sales while the median price continues to rise (a 10% rise YOY) is a pattern we’ve seen before starting in 2006. One shoe has dropped again and another is about to fall. The other show is called price.
What’s that line from Battlestar Galactica? This has all happened before, and it will all happen again…
“If it’s a mix shift, it has to be a massive one- much more than 35 sales can explain.”
Do you think prices increased by 10 percent (or close to it) over the last year?
If you look at Gary’s numbers, there’s still a decline distressed properties going on, this Jan versus last. Seems like that could affect both level of sales and the median.
Sabrina – “The market conditions couldn’t be more perfect for homebuying than they are right now.
1. Near record low mortgage rates
2. Unemployment around 5.5%
3. Record highs in the stock market”
“This housing market is sick indeed.”
“Prices are still way too high. Incomes aren’t rising fast enough. It’s still unaffordable for the average Chicago family.”
If the market conditions are perfect as you say – why do you consider prices to be way too high? Wouldn’t you expect prices to be high if the conditions are perfect?
Very interesting article from NYT about job growth in city centers. Chicago is #4 in the nation:
http://www.nytimes.com/2015/02/24/upshot/more-new-jobs-are-in-city-centers-while-employment-growth-shrinks-in-the-suburbs.html?rref=upshot&_r=1&abt=0002&abg=1
Here is the final paragraph which would help explain why the upper end is thriving while the lower end is not:
“But others say the shift overwhelmingly favors the highly skilled. “The problem with the general trend is that the poor are being priced out of cities,” said Mr. Glaeser, who teaches at Harvard University and wrote “Triumph of the City.”
American cities have succeeded in reshaping their urban cores as places people want to live and work. The question is whether these benefits will apply to everyone — or just to high earners.”
“American cities have succeeded in reshaping their urban cores as places people want to live and work. The question is whether these benefits will apply to everyone — or just to high earners.”
This is nonsense. There are lots of areas of every major city that are affordable. They’re just in areas where upper-middle class college educated people don’t want to live. Belmont-Craigin, Dunning, Beverly, Chatham, South Shore, Hedgewisch, etc.
yes HD you are right he’s a good article from a few months ago on the subject
http://www.chicagobusiness.com/article/20141206/ISSUE05/312069987/chicago-neighborhoods-divided-by-income-growth
“Belmont-Craigin, Dunning, Beverly, Chatham, South Shore, Hedgewisch, etc.”
None of those qualify as being in the “urban core”. Sure, they’re more urban than Long Grove, but that’s a low bar.
Of course DZ hit the nail right on the head. The median is rising because the low end of the market (all the distressed properties) has fallen off the cliff. Non-distressed January sales were up 9.6% from last year.
Inventories low and fast market times do not equate to a sick market. The question I have is why aren’t prices rising more?
Buyers are struggling to find properties. Some sellers can’t sell because they can’t find a place to move to.
“What’s the excuse this year?”
Do you mean reason?
1) Inventory
2) Prices are higher
Any other questions?
““What’s the excuse this year?”
Do you mean reason?”
Yeah, as stated in the quote from the article: “Buyer demand on lower inventory is pushing up prices to offer sellers an incentive”
Seems that the stated excuse/reason is “lower inventory”.
“Of course DZ hit the nail right on the head. The median is rising because the low end of the market (all the distressed properties) has fallen off the cliff. Non-distressed January sales were up 9.6% from last year.”
That could be a massive mix shift to explain the median price jump. But that’s very different than more sales in Lincoln park vs galewood. My only point is that the median price data isn’t meaningless precisely because a few extra sales in a high priced neighborhood or low priced neighborhood can’t do much to change it.
The median price is up because all homes are more expensive regardless of neighborhood. I’ve got two friends looking at the moment and it ain’t cheap out there anymore. There aren’t many deals to be found; and it seems like nearly every house on the market is priced $40k above the most recent neighborhood comps. I feel bad for them. Heck my house from ‘the bottom’ plus a rehab is worth a heck of a lot more today than it was even last year. I wouldn’t buy my house for what its worth today but people are paying it. My friends should have bought long ago; but they sat on their hands until the last minute and now they’re paying the highest prices since 2008. Yeah it’s not boom pricing again but it’s like walking onto the dealer’s lot the day after they sold the last of prior years models.
“The median price is up because all homes are more expensive regardless of neighborhood.”
Wha?? Jan-14, distressed sales were a little under 500. Jan-15 they were a little over 300. Replace ~100 under median sales with ~100 over median sales (there were almost 100 more non-distressed sales in Jan-15), and what happens to the median? It goes up.
Which may or may not be because the homes that are selling are selling for higher prices. The mix shift caused by the reduction in distressed sales *could* cause the median to go up, even if prices are actually *slipping* slightly.
“Which may or may not be because the homes that are selling are selling for higher prices. The mix shift caused by the reduction in distressed sales *could* cause the median to go up, even if prices are actually *slipping* slightly.”
The problem with your logic is that distressed housing isn’t selling cheap anymore. Often they’re they’re some most expensive property psf in the neighborhood. Everybody wants a foreclosure and because of demand they are priced higher; and the flippers are paying top dollar for foreclosures to flip these days.
I’ve also noticed that a lot of homeowner only want ‘new’ so they’re paying almost what amounts to a super premium to buy a rehabbed flipped foreclosure or distressed property. My buddy sends me links to rehabbed foreclosures and WOW there is a premium.
I’m a RE for a high end flipper who just went under contract. My client paid top dollar for the house earlier this year and he’s got it under contract for more than $40k what he thought he could sell it for when he bought it earlier this year.
It’s a decent neighborhood but the PPSF is pretty darn high.
This of course is anecdotal and heck, nobody here has time (maybe you do though) to sort through the data to see if what I see in the trenches is actually reflected in the data.
“Seems that the stated excuse/reason is “lower inventory”.d”
Inventory is Above 2013 levels when it was super low yet sales are still falling from those levels. So, no, it’s not low inventory or else we’d have another 2013 scenario with multiple offers and prices would be soaring again. But they’re not.
According to Case Shiller, Chicago prices through December of 2014 rose the slowest of the 20 city composite. So, no, prices aren’t going up. They’re no higher than January 2014. Yet more people braved the polar vortexes to buy last year than this year (AND with mortgage rates nearly 1% point higher.)
“Belmont-Craigin, Dunning, Beverly, Chatham, South Shore, Hedgewisch, etc.”
These are all counted in the monthly sales numbers. Plenty of people live outside the GZ but no one is buying a home there right now (seemingly.) Are they all still underwater and trapped in their houses?
“If the market conditions are perfect as you say – why do you consider prices to be way too high? Wouldn’t you expect prices to be high if the conditions are perfect?”
Only if incomes were rising. On an income basis, housing is the most expensive it has been in 20 years. Heaven help us when the mortgage rates rise. Then what?
You can’t get blood from a stone.
I tell every younger person I know looking to buy right now that they had better think long and hard about who will buy their condo when they go to sell it in 5 years and interest rates are at 6% or 7%.
“On an income basis, housing is the most expensive it has been in 20 years.”
Cite, please. And nothing national–just the Chicago (and/or metro) numbers, as that’s what we’re taking about.
“Inventory is Above 2013 levels when it was super low yet sales are still falling from those levels. So, no, it’s not low inventory or else we’d have another 2013 scenario with multiple offers and prices would be soaring again. But they’re not.”
Not true. January inventory way, way down from 2013 and even down from 2014.
And there is no way that prices could really be up 11% YOY and the Case Shiller index indicating a 1.3% gain. And to me it feels like there is no price appreciation in the last year so I’m inclined to believe the Case Shiller given all the limitations of the median home price.
The weather wouldn’t have been a factor in January closings last year either. The polar vortex didn’t start until January, as did the big snow numbers. December of 2013 was also not too bad.
“Inventory is Above 2013 levels when it was super low yet sales are still falling from those levels”
Proof?
“I tell every younger person I know looking to buy right now that they had better think long and hard about who will buy their condo when they go to sell it in 5 years and interest rates are at 6% or 7%.”
You’re giving the younger you know people very, very bad advice. Although skipping a starter condo if they plan on moving in 5 years isn’t the worst, if rates jump to 6 or 7% by 2020 our economy will be FLYING and home prices will be out of this world.
“You’re giving the younger you know people very, very bad advice. Although skipping a starter condo if they plan on moving in 5 years isn’t the worst, if rates jump to 6 or 7% by 2020 our economy will be FLYING and home prices will be out of this world.”
Interest rates may never go up. The economy isn’t all that great and incomes are flat as more people enter the workforce, which depresses wages. Additionally, there’s known negative macro economic effects from wealth concentration, and we have a lot of that in America right now. I personally don’t think interest rates will ever go too much higher again. Interest rates are based upon the risk of repayment, not the scarcity of money. I know that’s layman’s economics there but tis the truth.
“Interest rates are based upon the risk of repayment”
That *is* one element of what rates are based on…
Not the only, tho.
I agree with HD.
HD – “Interest rates are based upon the risk of repayment, not the scarcity of money.”
Not the interest rates we are talking about (treasuries off of which mortgages are priced). You worried the Fed’s printing press won’t work? There is zero repayment risk in T-bills. Only risk is that what they pay you with (dollars) will be worth less (or worthless) when you are paid.
yoss, I guess you have a point there, rates are affected by inflation.
“Interest rates may never go up. The economy isn’t all that great and incomes are flat as more people enter the workforce, which depresses wages.”
This is due to the immigration of unskilled workiers (as well as the outsourcing of low level service jobs) keeping lower level jobs incomes down to flat. If not for Jose and Sanji taking jobs for minimum wage that were once halfway decent jobs paying 20 bucks+ an hour to high school dropouts, grads or associate degree people no more than 35 years ago, things would cost much more for the upper and middle class yes wages have remained flat however the quality of life has improved exponentally over the last 25+ years that wages have been flat.
“the quality of life has improved exponentally over the last 25+ years that wages have been flat.”
Cheap lawn service doesn’t make up for increased inflation in health care, gas/oil, education, and taxes…
health care is far better than it ever has been before, people are living longer (for better or worse), same with education… people today have access to literally every piece of information on earth in their hands. That didn’t exist 25 years ago. Gas is cheap today, so is clothing and other necesseties. Homes today even for the poor have far more amenities than 25 years ago. I could go on for hours, I’m sure someone has written a book on the subject.
In the last 25 years we’ve seen the invention of the Internet and a myriad of services that go with it. I can buy a ton of stuff without leaving my house now. We have video on demand. New cancer drugs. New medical diagnostics. We carry devices in our pockets that are probably more powerful than what sent us to the moon. We can access our music from anywhere. We can connect to anyone anywhere. We don’t need maps anymore. The global supply chain is vastly more efficient than it was 25 years ago, bringing down the cost of all goods. It’s a wonderful time to be alive.
Oh…and we can keep up with the Kardashians in our living rooms.
HD – I hope your remodel project is done…
http://www.chicagotribune.com/suburbs/lake-county-news-sun/news/ct-lns-health-department-alert-measles-st-0227-20150226-story.html
“Interest rates may never go up. The economy isn’t all that great and incomes are flat as more people enter the workforce, which depresses wages.”
Let’s say we are Japan and rates don’t go up for 20 years. Why are real estate prices continuing to rise well above the rate of inflation and wage growth? It makes no sense. Oh- except the Fed is pumping extraordinary amounts of money into the economy to try and keep it afloat so it’s going somewhere- into stocks, bonds and real estate. But that has to end at some point.
And the data is showing that the “regular” American (NOT the investor) is already priced out. That’s the only explanation for why mortgage applications are at 19 year lows with mortgage rates near record lows. Money is cheap. People should be buying but they’re not.
Oh, and we only have about 5 or 6 weeks more of data this spring until it becomes clear that 2015 is going to be worse than 2014 (i.e. sales are going to be down again.) This spring market, so far, is a bust.
“You’re giving the younger you know people very, very bad advice.”
I have never said “don’t buy” Sonies. I have always said “don’t buy the stupid ass 2/2 condo that you KNOW you will sell in less than 5 years.” Heck, look at all the 2/2s in the GZ coming on the market right now that were last bought in the last 5 years. Plenty of them.
Too much happens to you. You could get a job in LA or San Francisco and have to move. Why tie yourself down?
And if you’re already married, you’re a fool to buy the 2/2. How many 2/2 condos have we seen over the years on this site with a crib in the second bedroom? 80% Heck- it may even be 90%. It’s almost become a cliché.
So I tell them- be very, very careful. If you’re already paying $450,000 (not absurd for a basic 2/2 in Lakeview these days) you should be looking for a starter home in the interior suburbs instead (Oak Park, Park Ridge etc.) Go somewhere you can live for 10 years or more to ride out any storms.
“And the data is showing that the “regular” American (NOT the investor) is already priced out. That’s the only explanation for why mortgage applications are at 19 year lows with mortgage rates near record lows. Money is cheap. People should be buying but they’re not.
Oh, and we only have about 5 or 6 weeks more of data this spring until it becomes clear that 2015 is going to be worse than 2014 (i.e. sales are going to be down again.) This spring market, so far, is a bust.”
Can we talk about Chicago? The regular Chicagoan is NOT priced out. If they were we wouldn’t be at record levels of non-distressed sales. Chicago employment continues to improve also. Sales are fine. There’s just not enough to sell.
“Although skipping a starter condo if they plan on moving in 5 years isn’t the worst, if rates jump to 6 or 7% by 2020 our economy will be FLYING and home prices will be out of this world.”
Why does everyone think “normal” interest rates means our economy has to be red hot? What were interest rates during the dot-com boom? They were WAY higher than 6%. Heck, my mortgage in 2001 was at 7%. And we were in a recession then.
You’ve been brainwashed to think that normalized rates can only occur when things are super hot instead of when they aren’t just good.
Right now- by the way- things are super hot. How can it get much better?
Unemployment for those with a college degree is at like 3.5%. Walmart had to raise wages because its employee turnover was so massive it was losing money. That’s a sign of a tight labor market- even for the unskilled. For the skilled labor, there are the most job openings in 10 years.
The stock market is soaring. My gosh, the NASDAQ is about to bust out to new records. 15 years its taken to get back to this level but finally it’s going to do it.
If you had just stayed in the stock market since 2008 you would be rich- owning just about any stock (not even a select few.) You could have bought a car stock and got rich. Cars!
Bonds are still in a massive bull rally – probably the final blowoff stage. But you haven’t had a loss in bonds in 21 years. Wow.
It can’t get any better for Americans. It really cannot. Heck, people even have health insurance and can go get mammograms free of charge. You can start a business even if you have a pre-existing medical condition.
So why should interest rates be at the emergency crisis level again? Because the US economy, the most dynamic economy in the world that is growing over 3% a year right now, can’t handle it?
Pulease.
You’re drinking the Kool-Aid Sonies.
“Inventory is Above 2013 levels when it was super low yet sales are still falling from those levels”
“Proof?”
How many articles do you want me to link to?
It’s above 2013 levels when it was at new lows. It’s been steadily rising ever since.
It’s still not great, as any buyer can tell you. But it’s not as bad as 2013. Yet sales are still falling.
“The weather wouldn’t have been a factor in January closings last year either. The polar vortex didn’t start until January, as did the big snow numbers. December of 2013 was also not too bad.”
We had one of the coldest November’s in 2013 and by January 1 we already had 2 feet of snow. The polar blasts didn’t actually happen until January.
But IAR blamed the weather last year. I’m sure it did for the February numbers too. But rightly so. It WAS bad last year. No such excuse this year. Yeah- February has been way colder than normal. Maybe that will influence March and April closings. We shall see.
Anyone else see this Crain’s article about a condo investor who has decided to sell his units in bulk at 757 N. Orleans in River North? This is what we need to see in this market. We need more product coming on.
Oh- what the article doesn’t mention, however, is that a brand new luxury high rise rental apartment is now open down the street and leasing. This building is 7 or 8 years old now. How can this landlord compete against a brand new high rise? Why try?
If you’re going to play the downtown landlord game in this very hot market, you have to keep up with the Jones. Painting the unit isn’t enough. You have to upgrade finishes and do other things to get those maximum high rise rents. Heck, Crain’s just had an article about how a building that is just 3 years old in Streeterville is already redoing its lobby to keep up with the newer high rises opening down the street. How do condo rentals keep up? After a few years, they look tired.
Renters want “new.”
http://www.chicagobusiness.com/realestate/20150226/CRED0701/150229875/time-to-sell-those-rented-condos-one-investor-thinks-so
“Aventura, Fla.-based Gamla Cedron Group hired a broker to sell 24 of the 34 condos it has been renting out in the 198-unit tower at 757 N. Orleans St. Gamla was one of several investors to buy new unsold downtown condos in bulk after the bust, seizing the opportunity to collect rent amid a strong downtown apartment market.
Now that the condo market is bouncing back, the question is whether it makes sense for a buyer to sell the units one by one or keep renting them. Rising condo prices could offer an attractive cash-out opportunity, but downtown apartment rents are at record highs.
It all comes down to math: Are the units at 757 N. Orleans worth more as condos or as apartments?”
“How many articles do you want me to link to?
It’s above 2013 levels when it was at new lows. It’s been steadily rising ever since. ”
Are we talking Chicago? Because Chicago inventory for January was at a record low. See 5th graph here: http://www.chicagonow.com/getting-real/2015/02/chicago-real-estate-market-update-2015-continuing-the-2014-trend/
“If they were we wouldn’t be at record levels of non-distressed sales.”
Really? We had more non-distressed sales in January 2015 than in 2006 or 2007? Please show me the data. Sales in January 2006 were nearly double 2015. You’re telling me that there were more non-distressed sales this year than then?
Stop it. Just stop it now.
Maybe we should go through and pull out all of the non-distressed sales from the last 7 years and see what the “normal” sales really were. No one has ever really done that. Because that just means we’re coming off an even lower bottom in 2010 and 2011.
But all it tells us is that the foreclosure market has cleared.
So?
Normal sales are still well under normal sales in prior years.
Oh- and I know Sonies will say “you can’t compare 2015 to the bubble years.” But mortgage rates are nearly 50% lower! It SHOULD be more affordable right now. But it’s not. Because prices are too high. People are priced out- yes even in Chicago. No one has gotten pay raises. So how do you think someone is supposed to pay more for a house? The only way it was possible was falling rates. But unless that goes to zero, you can’t get blood from a stone.
Middle class housing in Chicago’s north side is disappearing. Portage Park, for instance, is no longer middle class (not with bungalows going for $300,000.)
OK. I shouldn’t have said “record”. Non-distressed sales were the highest in 8 years. That is damn good.
How could prices rise to a level that people are priced out? If they were priced out they wouldn’t have bought at that level. SOME people are priced out. Clearly not the ones buying at these levels.
If inventories are at record lows (again- as 2013 was the last time it was)-then prices should be SOARING. There should be multiple offers on tons of properties as there were in 2013. That spring was INSANE (as anyone buying can tell you.) But those conditions just haven’t returned. No one feels urgency this spring. Some properties will go fast, others will sit. No real reason why. Pricing, finishes, who knows?
It can’t just be pricing. Because there are plenty of rich people who are supposedly looking (if only there was inventory.) As someone who lived in San Francisco for many years (and knows a low inventory market) there are bidding wars on EVERY property. But that isn’t the case in Chicago’s GZ. Again, far from it. 3 months on the market average market time? That isn’t super fast.
This market is just dead. This spring should be far better. People should be listing with prices back to record levels but they’re not. Where are all the accidental landlords?
What a mess. The Fed needs to normalize things so we can get back to a normal market.
By the way, plenty of condo construction again in the Caribbean. The most I’ve seen since 2008. The baby boomers are back and buying (both Americans and Canadians.) Again, stock market is at record highs. People’s homes in the states are at record highs again. Everyone feels really good.
“If inventories are at record lows (again- as 2013 was the last time it was)-then prices should be SOARING.”
And as I said above this is what has me baffled. I agree.
“Portage Park, for instance, is no longer middle class (not with bungalows going for $300,000.)”
With current interest rates, the only thing not “middle class” about a $300k house is the down payment. With a 25* front end ratio, you’re talking about a HHI under $70,000. Which is about the median *family* (ie, the sorts of buyers of bungalows) income in Chicago.
Now, absent a reason that one is stuck *needing* to buy in the city (city job or whatever), would I suggest that one should *absolutely* spend that $300k in Portage Park rather than an inner ring suburb, or even rather than Geneva or Joliet? No, I wouldn’t. But that’s a lifestyle/consumption *choice* that even resolutely middle class folks can make for themselves.
Is Portage Park ‘cheap’? Not really. Is there a re-sale problem if rates go up, but incomes don’t? Yep, but that’s a problem for everyone except the bona fide rich.
“How many articles do you want me to link to?”
More than zero?
% of city affordable for the middle class:
http://www.trulia.com/trends/2014/11/middle-class-millennials-report/
Chicago is remarkably affordable still. This is almost certainly because of its historic depopulation. Comparisons of Chicago to New York or San Francisco are asinine. Those markets are competitive because they don’t have 50 years of lost population, questionable stewardship, and unconstrained geography. This is also why Chicago is unquestionably the best major city to live in for the upper middle class.
Prices and inventory could be simultaneously low for a number of reasons. It’s a question of incredible complexity. Likely there are multiple variables in play.
The easiest answer is that we are in still in a period of debt overhang. What percentage of houses hold mortgages originated in 2000-2007? Nearly all of those households still have constrained mobility and decreased incentive to move. Until, say, a 10% premium on 2005, we’re probably not going to see healthy inventory.
The second easiest answer is structural demographics. Where are the largest population cohorts, and what stage of life are they in? We know household formation isn’t occurring at historical rates, and that our two largest cohorts after baby boomers are not of house buying age yet, which is driving down demand. Is there evidence of equal depressive forces on supply? We’re all talking about this increase in the proportion of young people in cities – what’s the statistical significance of the lower outflow and how does that affect inventory?
The third easiest answer is a new national psychology. Perhaps people aren’t as willing to blow wads of debt out of their ass to assume obligations they can’t afford. The personal savings rate has been running a non-negligible 2% above the 2000-2007 average.
We are seeing a healthy increase in non-distressed sales and sale prices. Our mostly u-shaped price recovery is tapering into a natural 3% rate on a painfully corrected Our 7 year trend line is an extremely measured recovery. Everything looks normal and balanced.
Economic benchmarks:
http://fortune.com/2014/07/18/housing-recovery-us/
Historical trend line:
http://www.zillow.com/research/economists-home-value-appreciation-to-exceed-5-percent-through-2013-4733/
Someone turn Sabrina’s hysteria switch off.
Unrelated: Buying in an aging, under-funded, third-tier, inner-ring suburb is probably the worst thing someone can do on a ten-year threshold.
“With current interest rates, the only thing not “middle class” about a $300k house is the down payment. With a 25* front end ratio, you’re talking about a HHI under $70,000. Which is about the median *family* (ie, the sorts of buyers of bungalows) income in Chicago.”
Can we be reminded what is “normal” for homebuyers? You all are living in the bubble mentality still.
$300,000 is NOT middle class. It is upper middle class. $150,000 is middle class. That is Orland Park. That is Lockport. That is Lake Zurich. Those are regular people with a few kids and two car payments who make $70,000. They are NOT buying a house that is over 4 times their income (again- unless you are thinking in the bubble mentality.)
They recently did a study of the vanishing middle class in Chicago and most of the North Side was now out of reach. Of course, you can move to Chatham and large parts of the south and west sides. But areas like Galewood and its bungalows aren’t affordable for the middle class anymore either.
But the middle class evidently don’t want to be on the south side because population is still decreasing there. They’re being forced out of the city and to the suburbs because housing is no longer affordable.
“How could prices rise to a level that people are priced out? If they were priced out they wouldn’t have bought at that level. SOME people are priced out. Clearly not the ones buying at these levels.”
Only the rich buy. Go to the outer areas like Portage Park and Irving Park. Even Norwood Park. Sales start falling. The middle class looks elsewhere or they don’t buy- they rent.
“If inventories are at record lows (again- as 2013 was the last time it was)-then prices should be SOARING.”
“And as I said above this is what has me baffled. I agree.”
Isn’t a lot of this just the weather? There’s a clear seasonality effect in the case shiller series. Prices are lower in teh winter. Now some of that may be due to sample selection. E.g., sellers in the winter are those that have to move unexpectedly and have less bargaining leverage, but it still means that buyers are not that aggressive in bidding things up in teh winter.
And there’s a foot of snow in the yard. Does not make for the most attractive listing photos. Also, if you are yourself buying, you want to sell when you can also buy readily.
Also not clear to me if inventory is low relative to pre bubble days. I’m not quite sure what “normal” inventory for (a cold) february is.
Here’s the link to the vanishing middle class over the last 40 years and how much “richer” the core and the north side has become.
This is why Portage Park, Irving Park, Ravenswood and even Albany Park bungalows are going for $300,000+ now despite the crappy schools.
http://danielkayhertz.com/2014/03/31/middle-class/
“Isn’t a lot of this just the weather? There’s a clear seasonality effect in the case shiller series.”
No. Not if you’re comparing every January for the last 15 years. January is January. It snows and is cold every single year. And for January closings, anyway, they went into contract in November and December (for the most part.) The weather is the same every year during that time too.
Also same incentives or disincentives to list during the winter. It is ALWAYS the lowest time of the year for inventories. But that is true every year. If you look at Gary’s data, it shows this year as even weaker than the beginning of 2013 when it had previously hit a multi-year low.
As for February, the spring selling season has always started in Chicago after the Super Bowl. Listings should be improving. Obviously this year is one of the top 10 coldest on record and its the second snowiest. So sellers may be waiting for a break in the weather and for spring to list. But that should be happening quickly over the next 2 to 3 weeks. If it doesn’t, something isn’t right with the market.
So Sabrina…you seem to be saying that prices are too high for the middle class and therefore they need to come down. That’s not true. Obviously there are plenty of upper middle class people around to buy in the city and keep prices elevated. I don’t see the problem.
DZ, what I find odd is that Case Shiller prices for all of 2014 were up only 1.3% during a period of extremely low inventory.
“No. Not if you’re comparing every January for the last 15 years. January is January. It snows and is cold every single year. And for January closings, anyway, they went into contract in November and December (for the most part.) The weather is the same every year during that time too.”
I would actually be interested in what inventory levels were pre bubble, which I haven’t seen. My broader point is that if the question is why isn’t the market reacting in a particular way, then I’d say the fact that it’s not doing something in particular in the middle of winter is not v probative of anything.
“what I find odd is that Case Shiller prices for all of 2014 were up only 1.3% during a period of extremely low inventory.”
isn’t case shiller for a much broader region than the area your invenotry numbers cover? I’m also curious what “normal” inventory should be. we basically have bubble, crash, recovery numbers. hard to know what normal should be.
“$150,000 is middle class.”
So, the middle class is either HHI at $40k, or at about $60k, with no expectation of future growth?
I think that that is lower middle. And I say that as someone who grew up in a pretty much lower middle household, that moved into real middle while I was in college. And the house we lived in was 3.25x gross income when purchased, which ratio (of course) declined over time as income went up–15 years later, price:HHI was sub 1.
Yes, if you expect to be on a fixed (or declining) nominal income for the next 30 years, buying at a 28% front-end is too high. Most bona fide middle class homebuyers aren’t that pessimistic, even if more of them should be.
“isn’t case shiller for a much broader region than the area your invenotry numbers cover?”
It’s for the metro, less Lake County. So, yes. But it places condos in a separate category, so that’s a different (substantial) piece of Gary’s inventory numbers. Really need two inventory lists.
I know quite a few people that have ‘middle class’ incomes but rent, daycare and student loans leave them solidly lower middle class. Median household income in the metro area is $53k. Pay rent of $1,200, student loans of $200, utilities, fuel, cell phone, food and maybe a car payment and there’s not much money left over. I thank my lucky stars I’m able to earn a decent income. I read once that families with median incomes usually go out to eat at Applebees/Fridays using whatever disposable cash they have leftover at the end of the week. I have distant family members like this!
“isn’t case shiller for a much broader region than the area your invenotry numbers cover?”
Good point. I just rechecked inventory for the entire PMSA and it’s at record lows for the time period available to me.
“Median household income in the metro area is $53k”
I don’t care about households, for purposes of buying SFH. Family income is the relevant number. Median family income is $73k. That’s about 8% below the real-dollar median in 05-08.
“I just rechecked inventory for the entire PMSA and it’s at record lows for the time period available to me.”
In terms of the graph you have up, inventory is essentially the same now as same time last year, right? Maybe lower but not materially different? Yes, much much lower than during the bursting of the bubble, but not sure how relevant that is.
The graph in the blog post is just for Chicago. Looks like detached is lower than last January and attached about the same – just eyeballing it right now.
The graph for the Chicago PMSA, combined property types, was flat to last January but is the lowest it has been since 2008 – just like for the city of Chicago.
pretty sure sabrina gets a big kick out of trolling her own blog.
Nobody can be that contradictory unintentionally
“It can’t just be pricing. Because there are plenty of rich people who are supposedly looking (if only there was inventory.) As someone who lived in San Francisco for many years (and knows a low inventory market) there are bidding wars on EVERY property. But that isn’t the case in Chicago’s GZ. Again, far from it. 3 months on the market average market time? That isn’t super fast.”
Really comparing to SF? It’s very common to get a six figure job right out of college if you have a functioning brain and you are in tech in SF… All of the reputable companies usually base college recruits at 105-130k. Anecdotal: Most of my developer friends ages 25-30 earn 150-175 in the Bay.
You want wage and home price appreciation: go where tech and oil and fracking goes.
Well, this is slightly off topic, but here goes: Anyone a Bears season ticket (club level) holder?
“Well, this is slightly off topic, but here goes: Anyone a Bears season ticket (club level) holder?”
Jerry’s dead, bro, this is not legit.
Inventory has nothing to do with list price and potential gain, it’s driven by macro factors, all of which add up to “Illinois SUCKS.” Homeowners have had it with undereducated realtors pretending to know anything about pricing, and they aren’t jumping into the market in spite of all the hype from these shysters. The economy sucks. Get an f’ing brain. Unemployment numbers aren’t close to accurate, too many people have become lifetime independent contractors, trying to cobble together a living thru Uber and BnB. Want proof? Go on LinkedIn and look at someone you know. I’m willing to bet that’s a fake resume, touting pretend experience and education in a desparate attempt to avoid living in a cardboard box. Oh, and the city is now in junk bond status territory, bankruptcy is imminent. How much house do you think a city employee can afford when their pension goes pfttttt?
“If the rating falls below Baa3, Chicago could be forced to pay about $1.2 billion if banks that provide liquidity facilities like letters of credit for city debt demand immediate collateral, Moody’s said.”
http://www.reuters.com/article/2015/02/27/us-usa-chicago-swaps-idUSKBN0LV26020150227
“Most of my developer friends ages 25-30 earn 150-175 in the Bay.”
After taxes, do they share an apartment and order Dominoes?
Wow! I had no idea this site was back, but I decided to check it out on a whim this morning. Good to see this site is still around and people are still debating!
My 2 cents is that as someone who lives in Chicago right now, I am a bit freaked out by the dire straights this city is in (if politicians are to be believed). It’s very tempting to move to a warmer climate.
It’s also really depressing to think that there are entire families out in Chicago with a HHI of $70k. I’m single and make more than that. How does it even happen that two people together don’t make that much? Sad.
“How much house do you think a city employee can afford when their pension goes pfttttt?”
The pensions are, basically, guaranteed.
Now, that doesn’t mean they won’t have to double the property tax to pay for it. But pay it they will.
“How much house do you think a city employee can afford when their pension goes pfttttt?”
Besides, by the time someone is actually getting their pension, they should already own their home outright.
“Really comparing to SF? It’s very common to get a six figure job right out of college if you have a functioning brain and you are in tech in SF”
I lived there 20 years ago- before the dot-com boom became a bubble and then bust (also lived there during the bust- good times.) Even during the bust, it was low inventory and multiple offers on homes. This market is NOTHING like today’s in Chicago. That’s the only reason I bring it up. In a truly low inventory market, there should be bidding wars going on all over the place.
But there isn’t.
And please, stop with how everyone earns $175,000 in the Bay Area. They don’t.
Besides, 7 of the richest cities are in Washington DC and its suburbs. Average median income of the DC metropolitan area is also higher than the Bay Area.
“isn’t case shiller for a much broader region than the area your invenotry numbers cover?”
Case Shiller includes Joliet and Naperville and everywhere in between.
“we basically have bubble, crash, recovery numbers. hard to know what normal should be.”
Normal inventory is 6 months. Anything higher is a buyers market. Anything lower is a sellers market. 1 or 2 months worth of inventory is incredibly low. You almost never see that in Chicago where there is endless land to build on.
Low inventory here means something is very wrong with the market – especially in an environment when prices in the GreenZone are well above the pre-bubble prices.
“That’s not true. Obviously there are plenty of upper middle class people around to buy in the city and keep prices elevated. I don’t see the problem.”
Upper middle class is not the same as middle class. Upper middle class is just 15% of the total population. The middle class is basically everyone else. Society can’t function if they can’t afford to buy a house, a car, go on a vacation with their family and live the dream of sending their kids to good schools. Everything we know breaks down.
I can’t deal with everything people want in life but I can discuss housing. If the middle class can’t afford the Green Zone then they’ll move just outside the Green Zone and that’s happening. And there are obviously enough upper middle class to move prices up in the Green Zone and keep them there.
“If the middle class can’t afford the Green Zone then they’ll move just outside the Green Zone and that’s happening.”
I’m talking about Portage Park, Albany Park, Ravenswood, Irving Park, Norwood Park. All of these are outside the GZ and the middle class can not afford to live there.
They can’t afford most of the interior suburbs either.
But this is true in almost every major city (in the US and abroad) where the rich have moved to the city centers, pushing the middle class and the poor further out to the periphery.
I’m not saying the middle class should get to live wherever they want but in the last 40 years, the middle class comfortably raised families in Oak Park, Evanston and Park Ridge- in small bungalows- many times on one salary AND sent their kids to college. Obviously, all that has changed.
The GZ is sooooo small to be almost inconsequential. Did anyone look at the recent mayoral maps with the vote totals? It really reminds you how large the city of Chicago is, how many wards there are, and how truly small, say, Lincoln Park, is.
I’m not following what you think the problem is. So the upper middle class buys in Portage Park then and the middle class moves further out. That doesn’t mean prices are coming down. Obviously the demand had to be there in the first place in order for the prices to get to where they are.
“I’m not following what you think the problem is.”
Neither is she.
“Low inventory here means something is very wrong with the market – especially in an environment when prices in the GreenZone are well above the pre-bubble prices.”
Let me ask you this. Do must people move UP or move DOWN?
If two working adults can’t scrape by $100k together, they aren’t middle class and they shouldn’t expect to live in the green zone. $100k a year should be enough for a family to get a decent sfh in many suburbs with perfectly mediocre schools. If they wanted more from life, they should have worked harder.
I also don’t think people who aren’t ever going to get pensions should have to pay for lazy city workers to get pensions.
Lazy gubernment employee pensions are “guaranteed”-until Rauner convinces enough municipalities to go BK, which gets around state law. Then Chicago becomes an island, despised even more by the suburban and downstate employees who lost theirs. And by that time Rahm is done, moving on to Hillary’s next disasterous attempt at becoming relevant.
No way Illinois buys it’s way out of trouble, BK is imminent
Posted my February market update yesterday: http://www.chicagonow.com/getting-real/2015/03/chicago-real-estate-market-update-finally-an-uptick-in-home-sales/
So sales were up in February – 6% over last year- even after taking into account the significant drop in distressed sales! What are we going to complain about now? As the year progresses and we comp against numbers with even lower distressed sales this percentage should rise.
Inventories still low but market times surprisingly ticked up a bit.
“So sales were up in February – 6% over last year- even after taking into account the significant drop in distressed sales! What are we going to complain about now? ”
Sabrina will just say that they were actually down. “A lie told often enough becomes the truth”.
February was tied with the year 1875 as the coldest on record… I thought the weather was going to be the excuse for people er not buying homes?
guess we will find out in april!
Anon…
For you.. he made it down here.. motorized version.
http://www.politicanarede.com/2015/03/manifestantes-constroem-rato-gigante-da.html
rato gigante!! awesome!
“rato gigante!! awesome!”
did you watch the video? The moving mouth chomping on money was just fantastic!! Not bad for the 3rd or is it now 4th or maybe 5th world?
“February was tied with the year 1875 as the coldest on record… I thought the weather was going to be the excuse for people er not buying homes?”
Properties that sold in February were under contract in December and January. In December, there was no snow for the first time in like 75 years. And it wasn’t cold either. In January, it started out cold and was moderate the rest of the month. Additionally, not much snow.
So, no, weather would NOT have been a problem this year. Last year- sure. It was both cold and near record snowfall starting in November in 2013 into March of 2014.
I would expect in a market with nearly PERFECT housing conditions, we should certainly see higher sales than a year ago. I don’t understand why we are not.
“Inventories still low but market times surprisingly ticked up a bit.”
Thanks for the update Gary.
I don’t understand the part about market times rising though. Inventory is the lowest in 15 years according to your data. Mortgage rates are at record lows. How could market times tick up?
It’s a messed up market.
What about February prices? What’d those do?
“I would expect in a market with nearly PERFECT housing conditions, we should certainly see higher sales than a year ago. I don’t understand why we are not.”
But we did see higher sales.
“I don’t understand the part about market times rising though. Inventory is the lowest in 15 years according to your data. Mortgage rates are at record lows. How could market times tick up? ”
I was surprised as well but the uptick wasn’t huge.
“What about February prices? What’d those do?”
No way to know about February prices at this time. Case Shiller won’t be out for several more months.
“Inventory is the lowest in 15 years according to your data.”
But didn’t you say that inventory was up?
Don’t really know where to post this but here is an interesting article on business activity in Chicago – #1 two years in a row!
http://www.siteselection.com/issues/2015/mar/top-metros.cfm
“Not bad for the 3rd or is it now 4th or maybe 5th world?”
They can just hire a couple of guys to make the mouth move, no?
Even here, the union guys (often) just hire non-union sign carriers to stand around the rat. I always enjoy the irony of that.
The rats are cute and funny. If everything else was equal, I would choose to buy from the company with angry union workers carrying a rat than a company with happy union workers.