Housing Price Forecasts Illinois and Chicago PMSA, February 2016
Presented To
Illinois Association of Realtors From R
E
A
L
Regional Economics Applications Laboratory, Institute of Government and Public Affairs University of Illinois
February 23, 2016
Contact:
Geoffrey Hewings 217-333-4740 (
[email protected]) Xian Fang 217-244-7226 (
[email protected])
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Housing Price Forecast: Illinois and Chicago PMSA, February 2016 The Housing Market In January, sales experienced large monthly decreases and small annual increases while median prices kept growing at moderate annual rates. 8,247 houses were sold in Illinois, down 30.8% from a month ago but up by 3.05% from a year ago. In the Chicago PMSA, 6,018 houses were sold, down 28.5% from a month ago and up 4.8% from a year ago. The median price was $164,000 in Illinois, up 9.3% from January last year; the comparable figure for the Chicago PMSA was $191,000, an increase of 9.1% from this time last year. For the Chicago PMSA, the percentage of foreclosed sales (e.g. REOs) among the total sales was 18.5%, the lowest January reading since 2008. 4,785 regular sales were made, 12.3% more than last year. 1,187 foreclosed properties were sold, 17.3% less than last year. The median price was $214,010 for regular property sales, up 7.0% from last year; the comparable figure for the foreclosed properties was $134,000, up 11.7% from this time last year. The sales forecast for February, March and April 2016 suggests large positive change on a monthly basis and small growth on a yearly basis. On a monthly basis, the three-month average sales are forecast to decrease by 14.9%-19.7% for Illinois and increase by 14.5%-19.2% for the Chicago PMSA. Annually for Illinois, the three-month average forecasts point to a change of about 2.6%-3.5%; for the Chicago PMSA, the change will range from 3.3% to 4.4%. The median price forecast indicates moderate annual growth in both Illinois and the Chicago PMSA for February, March and April. In Illinois, the median price is forecast to rise by 8.6% in February, 6.1% in March and 6.8% in April. For the Chicago PMSA, the comparable figures are 6.1% in February, 4.1% in March and 5.8% in April. As a complement to the median housing price index (HPI), the REAL HPI 1 forecasts milder growth for Illinois and stronger growth for the Chicago PMSA. In Illinois, the REAL HPI (Jan 2008=1) is forecast to rise by 6.8% in February, 6.8% in March and 5.4% in April. The comparable figures for the Chicago PMSA are 9.0% in February, 8.3% in March and 6.1% in April. REAL HPI takes housing characteristics into account and constructs comparable “baskets” of homes for each month. Sale prices in January 2008 have been adjusted to 2016 values to enable calculation of the housing price recovery taking into account the effects of inflation. In Illinois, the January 2008 median sale price was $187,000 (in $2008) and $209,856 (in $2016); the current price level was 78% of the 2008 level after adjusting (88% before adjusting). In the Chicago PMSA, the January 2008 median sale price is $239,500 (in $2008) and $268,773 (in $2016); the comparable figure for price recovery in January 2016 is 71% after adjustment (80% before adjusting). According to average annual growth rates of prices in the past months, it could take between 3.3~4.3 years (39~52 months) for Illinois and 3.3~4.3 years (40~51 months) for the Chicago PMSA to recover to the 2008 levels. In January 2016, 1,784 houses were newly filed for foreclosure in the Chicago PMSA (down 24.0% and up 0.28% respectively from a year and a month ago). 1,463 foreclosures were
1
REAL HPI was developed by Esteban Lopez and Minshu Du. Contact us for further details.
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completed 2 (down 32.7% and up 7.2% respectively from a year and a month ago). As of January 2016, there are 37,122 homes at some stage of foreclosure — the foreclosure inventory. The average inventory change rates3 were 1.1% in the past 6 months, 1.4% in the last 12 months and -1.2% in the last 24 months. Given the 24-month rate of change, the foreclosure inventory would return to the pre-bubble levels4 by Oct 2022. According to the positive 6-month rate and 12-month rate, the inventory would increase. Two consumer indices changed slightly in opposite directions. The Conference Board Consumer Confidence index was reported increasing to 98.1 from 96.3 last month. Meanwhile, the University of Michigan Consumer Sentiment Index edged down to 92.0 from 92.6 last month. A highlight in their household survey is that the largest percentage of households in the high-income group noted concerns about the stock market and the weak global economy. As for housing market specifically, the Fannie Mae Home Purchase Sentiment Index (HPSI) decreased to 81.5 from 83.2. Compared to last month, Good Time to Sell increased by 1 point and Good Time to Buy decreased by 4 points, the largest contributor to the decline in HPSI. While the nationwide job market condition slowly improved, it did not appear promising in Illinois. In January 2016, according to the Bureau of Labor Statistics (BLS) Employment Situation report, the national unemployment rate edged down to 4.9% and nonfarm payroll jobs experienced gains of 151,000 jobs. In December 2015, according to the Illinois Department of Employment Security (IDES) news release, the Illinois unemployment rate edged up to 5.9% and 16,300 non-farm payroll jobs were lost. At current rates of job growth, the Illinois will not regain its pre-recession level until September 2017 while the nation as a whole is already 3.5% above the pre-recession level. 2015 was the first year since 2009 that Illinois experienced an annual job loss (-3,000). The Housing Market – Current Condition
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In January, sales experienced small annual increases and large monthly decreases while median prices kept growing at moderate annual rates. 8,247 houses were sold in Illinois, down 30.8% from a month ago and up by 3.05% from a year ago. In the Chicago PMSA, 6,018 houses were sold, down 28.5% from a month ago and up 4.8% from a year ago. The median price was $164,000 in Illinois, up 9.3% from January last year; the comparable figure for the Chicago PMSA was $191,000, up 9.1% from this time last year. (Reference: Illinois and Chicago PMSA Total Home Sales and Median Home Sales Price figures; Forecast for February 2016 report table) In January, for the Chicago PMSA, the percentage of foreclosed sales (e.g. REOs) among the total sales was 18.5%, the lowest January reading since 2008. 4,785 regular sales were made, 12.3% more than last year. 1,187 foreclosed properties were sold, 17.3% less than last year. The median price was $214,010 for regular property sales, up 7.0% from last year; the comparable figure for the foreclosed properties was $134,000, up 11.7% from this time last year.
Including estimated foreclosure completions that are missing in the data. The range of months used for calculating the average change rates are modified from the 6/12/24 months’ scenarios to 3/6/9 months’ scenarios since Aug 2014. 4 Average foreclosure inventory from 1997-2005 3
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In January, at the latest average annual pending sales rate, Illinois had enough housing inventory for 4.2 months5 (down from 5.2 months a year ago). In the Chicago PMSA, the comparable figure was 3.0 months (down from 4.0 months a year ago). However, months of supply are increasing for homes priced above $700K in both Illinois and the Chicago PMSA. (Reference: Illinois and Chicago PMSA Annual Months’ Supply by Price Range figures) In January, the market shares of homes priced below $100K experienced the largest drop compared to a year ago. In Illinois, the market share for homes in this price range decreased to 25.4% from 31.2% a year ago; the comparative figure for the Chicago PMSA showed a decrease to 17.3% from 23.2% a year ago. (Reference: Illinois and Chicago PMSA Price Stratification figures) The Housing Market – Forecast and Future Condition
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The median price forecast indicates moderate annual growth in both Illinois and the Chicago PMSA for February, March and April. In Illinois, the median price is forecast to rise by 8.6% in February, 6.1% in March and 6.8% in April. For the Chicago PMSA, the comparable figures are 6.1% in February, 4.1% in March and 5.8% in April. (Reference: Forecast for February 2016 report table) As a complement to the median housing price index (HPI), the REAL HPI6 forecasts milder growth for Illinois and stronger growth for the Chicago PMSA. In Illinois, the REAL HPI (Jan 2008=1) is forecast to rise by 6.8% in February, 6.8% in March and 5.4% in April. The comparable figures for the Chicago PMSA are 9.0% in February, 8.3% in March and 6.1% in April. REAL HPI takes housing characteristics into account and constructs comparable “baskets” of homes for each month. (Reference: Housing Price Index) The sales forecast for February, March and April 2016 suggests small growth on a yearly basis and large positive change on a monthly basis. Annually for Illinois, the three-month average forecasts point to a change of about 2.6%-3.5%; for the Chicago PMSA, the change will range from 3.3% to 4.4%. On a monthly basis, the three-month average sales are forecast to decrease by 14.9%-19.7% for Illinois and increase by 14.5%-19.2% for the Chicago PMSA. (Reference: Forecast for February 2016 report table) The pending home sales index 7 is a leading indicator based on contract signings. This January, the number of homes put under contract was greater than last year and last month. The pending home sales index is 123.8 (2008=100) in Illinois, up 23.9% from last month and up 7.9% from a year ago. In the Chicago PMSA, the comparable figure is 147.3, up 27.7% from a month ago and up 12.4% from a year ago. (Reference: Illinois and Chicago PMSA Pending Home Sales Index figure) In January 2016, 1,784 houses were newly filed for foreclosure in the Chicago PMSA (down 24.0% and up 0.28% respectively from a year and a month ago). 1,463 foreclosures were completed8 (down 32.7% and up 7.2% respectively from a year and a month ago). As of January 2016, there are 37,122 homes at some stage of foreclosure — the foreclosure
Months’ supply of inventory is defined as inventory of homes for sale at the end of the month divided by the average monthly pending sales in the last twelve months. 6 REAL HPI was developed by Esteban Lopez and Minshu Du. Contact us for further details. 7 The base level (100) of pending home sales is the average pending home sales of year 2008. 8 Including estimated foreclosure completions that are missing in the data.
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inventory. The average inventory change rates9 were 1.1% in the past 6 months, 1.4% in the last 12 months and -1.2% in the last 24 months. Given the 24-month rate of change, the foreclosure inventory would return to the pre-bubble levels10 by Oct 2022. According to the positive 6-month rate and 12-month rate, the inventory would increase (Reference: Chicago PMSA Foreclosure Activity and Inventory figures). The Economy
In January 2016, according to the Bureau of Labor Statistics (BLS) Employment Situation report, the national unemployment rate edged down to 4.9% and nonfarm payroll jobs experienced gains of 151,000 jobs. The employment growth was led by retail trade (58,000). The growth was followed by food services and drinking (+47,000) and health care (+37,000). In December 2015, according to the Illinois Department of Employment Security (IDES) news release, the Illinois unemployment rate edged up to 5.9% and lost 16,300 non-farm payroll jobs. At current rates of job growth, the Illinois will not regain its pre-recession level until September 2017 while the nation as whole is already 3.5% above the prerecession level. 2015 was the first year since 2009 for Illinois experiencing the annual job loss (-3,000). In December 2015, the one-year-ahead forecast for Illinois indicates that the non-farm employment will decrease at a rate between 0.19% and 0.77%, corresponding to job loss between 45,200 and 11,200. Only three out of ten sectors are forecast with positive job growth: construction (1.53%; 3,300), education and health (1.44%; 13,000) and leisure and hospitality (0.78%; 4,400).
Longer-term Outlook In January, two consumer indices changed slightly in opposite directions. The Conference Board Consumer Confidence index was reported increasing to 98.1 from 96.3 last month. Meanwhile, the University of Michigan Consumer Sentiment Index edged down to 92.0 from 92.6 last month. A highlight in their household survey is that the largest percentage of households in the high income group, since the 1997 Asian crisis, mentioning about the stock market and weak global economy as their concern.
In January, Fannie Mae Home Purchase Sentiment Index (HPSI) decreased to 81.5 from 83.2. Compared to last month, Good Time to Sell increased by 1 points and Good Time to Buy decreased by 4 points, the largest contributor to the decline in HPSI. This index uses information from their National Housing Survey collecting consumers’ feeling and opinions on home purchasing, directions and conditions of the housing market, finance conditions and the job market.
The Chicago Business Activity Index (CBAI) decreased to 97.2 in December from 98.7 in November. The decline is attributed to the negative job growth in the manufacturing and nonmanufacturing sectors in the Chicago area.
9
The range of months used for calculating the average change rates are modified from the 6/12/24 months’ scenarios to 3/6/9 months’ scenarios since Aug 2014. 10 Average foreclosure inventory from 1997-2005
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“With Illinois ending 2015 with a net job loss for the first time since 2009, there is some concern about when this begins to affect the housing market,” noted Geoffrey J.D. Hewings, Director of the Regional Economics Applications Laboratory. “Nationally, consumers seem more optimistic about selling a house than buying one; with the continuing budget impasse in Springfield, concerns about job retention are likely to dampen housing demand. The first quarter of 2016 should provide a key to the impact of the state’s economy on the housing market”
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Forecast for February 2016 report PERCENTAGE CHANGE FOR THE TOTAL NUMBER OF SALES Annual
Monthly
Illinois
Chicago PMSA
Illinois
Chicago PMSA
Nov-15
-1.4%
-2.0%
-25.1%
-25.4%
Dec-15
2.8%
3.9%
21.0%
20.8%
Jan-16
3.0%
4.8%
-30.8%
-28.5%
1.5%
2.1%
-14.1%
-13.4%
3 Month Avg.
SUMMARY OF THE FORECAST INTERVALS FOR THE TOTAL NUMBER OF SALES Annual Illinois
Monthly Chicago PMSA
Illinois
Chicago PMSA
Feb-16
7.9%
10.5%
8.4%
11.2%
5.8%
7.7%
4.1%
5.4%
Mar-16
1.1%
1.4%
1.9%
2.5%
29.7%
39.2%
30.4%
40.2%
Apr-16
0.7%
1.0%
1.4%
1.8%
10.3%
13.6%
10.1%
13.4%
2.6%
3.5%
3.3%
4.4%
14.9%
19.7%
14.5%
19.2%
3 Month Avg.
SUMMARY OF THE FORECAST FOR THE MEDIAN PRICE Illinois
Chicago PMSA
Illinois
Chicago PMSA
Nov-15
$165,000
$195,000
Nov-14
$154,900
$181,690
Dec-15
$165,000
$198,000
Dec-14
$154,000
$183,000
Jan-16
$164,000
$191,000
Jan-15
$150,000
$175,000
Feb-16
$160,808
$185,868
Feb-15
$148,000
$175,000
Mar-16
$175,195
$210,285
Mar-15
$165,000
$202,000
Apr-16
$181,091
$220,287
Apr-15
$169,500
$208,000
ANNUAL PERCENTAGE CHANGE OF THE MEDIAN PRICE Illinois
Chicago PMSA
Illinois
Chicago PMSA
Nov-15
6.5%
7.3%
Nov-14
6.8%
7.1%
Dec-15
7.1%
8.1%
Dec-14
3.7%
3.8%
Jan-16
9.3%
9.1%
Jan-15
10.5%
7.3%
Feb-16
8.6%
6.1%
Feb-15
12.0%
12.5%
Mar-16
6.1%
4.1%
Mar-15
11.4%
15.3%
Apr-16
6.8%
5.8%
Apr-15
9.3%
9.4%
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Median Prices and Recovery Illinois [$2008] $187,000 $146,049 Adjusted Unadjusted
January 2008 Median Price January 2016 Median Price Price Ratio (January 16/January 08)
[$2016] $209,856 $164,000 0.78 0.88
Chicago PMSA [$2008] [$2016] $239,500 $268,773 $170,198 $191,000 Adjusted 0.71 Unadjusted 0.80
Recovery Forecasts using Annually Growth Rates
Current Month Past 3 months Past 6 months Past 9 months Past 12 months
Illinois Annual Recovery Rate*
Chicago PMSA Years to Recover**
Recovery Rate
Years to Recover
7.8% 6.8% 5.9% 6.3% 7.5%
3.3 3.8 4.3 4.0 3.4
7.7% 7.3% 6.4% 6.0% 7.6%
3.3 3.5 4.0 4.3 3.4
*Annual recovery rate is the average of annual change rates in past months ** Years to recover is calculated using the following formula: PriceJanuary2016*(1+recovery rate)^years=PriceJanuary2008. Prices used in the formula are inflation adjusted. The recovery rate is applied as a constant annual change rate to recoup the differences between the current month and its corresponding month in 2008.
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