Housing Price Forecasts Illinois and Chicago PMSA, January 2015
Presented To
Illinois Association of Realtors From R
E
A
L
Regional Economics Applications Laboratory, Institute of Government and Public Affairs University of Illinois
January 23, 2015
Contact:
Geoffrey Hewings 217-333-4740 (
[email protected]) Xian Fang 217-244-7226 (
[email protected])
Housing Forecast
January 2015
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Housing Price Forecast: Illinois and Chicago PMSA, January 2015 The Housing Market In December, sales recovered from the unexpected drop last month, but median housing prices grew at a much milder pace. 11,397 houses were sold in Illinois, up by 14.7% from a month ago and 0.9% less than a year ago. In the Chicago PMSA, 7,971 houses were sold, up by 12.3% from a month ago and 3.7% less than a year ago. The median price was $154,000 in Illinois, up 3.7% from December last year; the comparable figure for the Chicago PMSA was $184,000, up 4.2% from this time last year. The recovery of sales was attributed to a surge in foreclosed property sales compared to regular sales; this phenomenon contributed to the milder median price growth. In December for the Chicago PMSA, the percentage of foreclosed sales (e.g. REOs) among the total sales was 20.6%, higher than the 19.2% last month. 6,214 regular sales were made, 11.3% more than last month. 1,703 foreclosed properties were sold, 15.5% more than last month. The median price was $208,200 for regular property sales, barely changed from December last year (up 0.58%); the comparable figure for the foreclosed properties was $121,900, up 6.0% from this time last year. The median price forecast still indicates steady but moderate annual increases for January, February and March compared to a year ago. In Illinois, the median price is forecast to rise by 6.7% in January, 8.0% in February and 5.2% in March. For the Chicago PMSA, the comparable figures are 5.3% in January, 8.2% in February and 5.8% in March. As a complement to the median housing price index (HPI), the REAL HPI 1 forecasts weaker growth for both Illinois and the Chicago PMSA. In Illinois, the REAL HPI (Jan 2008=1) is forecast to rise by 5.3% in January, 3.2% in February and 1.9% in March. The comparable figures for the Chicago PMSA are 3.6% in January, 3.0% in February and 2.0% in March. REAL HPI takes housing characteristics into account and constructs comparable “baskets” of homes for each month. The sales forecast for January, February and March 2015 suggests positive year-over-year growth and milder monthly downtrends. Annually, the three-month average forecasts point to a change between 7.1% and 9.3% for Illinois; for the Chicago PMSA, the change will range from 8.8% to 11.5%. On a monthly basis, the three-month average sales are forecast to decrease by 4.1%-5.4% for Illinois and 1.5%-2.0% for the Chicago PMSA. Nationwide, according to NAR, existing home sales are predicted to reach 5.3 million in 2015, well above 4.9 million in 2014 and 5.1 million in 2013. Higher anticipation from consumers on the trend for their personal financial situations may result in a boost home sales to some degree. Consumers’ confidence reached an historic high level as the job market conditions improved and gasoline prices declined. In December, the University of Michigan Consumer Sentiment Index increased to 93.6 – the highest since January 2007. Growth in jobs and wages, together with more expenditure savings from declining energy cost were contributors to consumers' optimism on current conditions and short-term 1
REAL HPI was developed by Esteban Lopez and Minshu Du. Contact us for further details.
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January 2015
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expectations. According to their survey, consumers are expecting a gain of 1.7% in their annual income and the highest expectation are from people under 45 with an expected rate of 4.7%. Moreover, declining mortgage rates also send positive signals to the housing market, at least in the short run. According to Freddie Mac, the monthly average 30-year fixed rate decreased to 3.86 percent in December 2014 from 4.46 percent last year. As a result of the drastically drop in the gasoline price, the 30-year mortgage rate decreased as yields on 10-year Treasuries dropped due to the lower inflation. Furthermore, uncertainties in the global economy also stimulated declines in mortgage rates in the US. Quantitative easing and the terrorist attacks in Europe necessarily direct investments out of the Europe, while the growth rates in Brazil and China are slowing down. Therefore, the extra inflow of investment to the United States kept the government bonds at a lower rate. At the meantime, house purchase closing times may become longer due to a new Fannie Mae program starting in January that provide lenders the access of a home evaluation database. Appraisers will have to adjust their evaluation of a home if their submission is higher than the lenders’ own judgment using the tools provided by Fannie Mae. While appraisers are forecasting extra work they will encounter and predicting that higher charges may apply, it is probably a justifiable mean to promote the accuracy of appraising and thus contributing to the assembly of more accurate information for the housing market transaction process. The Housing Market – Current Condition
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In December, sales recovered from the unexpected drop last month, but median housing prices grew at a much milder pace. 11,397 houses were sold in Illinois, up by 14.7% from a month ago and 0.9% less than a year ago. In the Chicago PMSA, 7,971 houses were sold, up by 12.3% from a month ago and 3.7% less than a year ago. The median price was $154,000 in Illinois, up 3.7% from December last year; the comparable figure for the Chicago PMSA was $184,000, up 4.2% from this time last year. (Reference: Illinois and Chicago PMSA Total Home Sales and Median Home Sales Price figures; Forecast for January 2015 report table) In December for the Chicago PMSA, the percentage of foreclosed sales (e.g. REOs) among the total sales was 20.6%, above the 19.2% last month. 6,214 regular sales were made, 11.3% more than last month. 1,703 foreclosed properties were sold, 15.5% more than last month. The median price was $208,200 for regular property sales, barely changed from December last year (up 0.58%); the comparable figure for the foreclosed properties was $121,900, up 6.0% from this time last year. In December, at the latest average annual pending sales rate, Illinois had enough housing inventory for 4.8 months 2 (down from 5.0 months a year ago). In the Chicago PMSA, the comparable figure was 3.5 months (down from 3.6 months a year ago). Months of supply are increasing for homes in all price ranges above $200K and decreasing for homes below $200K in both Illinois and the Chicago PMSA. (Reference: Illinois and Chicago PMSA Annual Months’ Supply by Price Range figures)
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.
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In December, homes priced below $100K and in the range $500-$700K held smaller market shares compared to a year ago, while homes at all other higher price ranges received increases in market shares. For example, in Illinois, homes priced below $100K held a market share that decreased to 29.4% from 31.9% a year ago. The comparable figure for the Chicago PMSA was 20.9% decreasing from 25.4% recorded in December 2013. (Reference: Illinois and Chicago PMSA Price Stratification figures)
The Housing Market – Forecast and Future Condition
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The median price forecast still indicates steady annual increases in median prices for January, February and March compared to a year ago. In Illinois, the median price is forecast to rise by 6.7% in January, 8.0% in February and 5.2% in March. For the Chicago PMSA, the comparable figures are 5.3% in January, 8.2% in February and 5.8% in March. (Reference: Forecast for January 2015 report table) As a complement to the median housing price index (HPI), the REAL HPI 3 forecasts weaker growth for both Illinois and the Chicago PMSA. In Illinois, the REAL HPI (Jan 2008=1) is forecast to rise by 5.3% in January, 3.2% in February and 1.9% in March. The comparable figures for the Chicago PMSA are 3.6% in January, 3.0% in February and 2.0% in March. REAL HPI takes housing characteristics into account and constructs comparable “baskets” of homes for each month. (Reference: Housing Price Index) The sales forecast for January, February and March 2015 suggests positive year-overyear growth and milder monthly downtrends. Annually, the three-month average forecasts point to a change between 7.1% and 9.3% for Illinois; for the Chicago PMSA, the change will range from 8.8% to 11.5%. On a monthly basis, the three-month average sales are forecast to decrease by 4.1%-5.4% for Illinois and 1.5%-2.0% for the Chicago PMSA. (Reference: Forecast for January 2015 report table) The pending home sales index 4 is a leading indicator based on contract signings. This December, homes put under contract decreased for both Illinois and the Chicago PMSA. The pending home sales index is 94.7 (2008=100) in Illinois, down 11.3% from last month and up 7.8% from a year ago. In the Chicago PMSA, the comparable figure is 112.5, down 7.5% from a month ago but up 14.5% from a year ago. (Reference: Illinois and Chicago PMSA Pending Home Sales Index figure) In December 2014, 2,360 houses were newly filed for foreclosure in the Chicago PMSA (down 34.6% and 46.5% respectively from a year and a month ago), the lowest December figures since 2006. 2,806 foreclosures were completed 5 (down 43.2% and up 8.3% respectively from a year and a month ago). As of December 2015, there are 31,103 homes at some stage of foreclosures — the foreclosure inventory. The average inventory change rates 6 were -0.81% in the past 3 months, -1.5% in the last 6 months and -3.6% in the last 9 months. Given these rates of change, the foreclosure inventory
REAL HPI was developed by Esteban Lopez and Minshu Du. Contact us for further details. The base level (100) of pending home sales is the average pending home sales of year 2008. 5 Including estimated foreclosure completions that are missing in the data. 6 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
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would return to the pre-bubble levels 7 by January 2023, September 2019 and November 2016 respectively. (Reference: Chicago PMSA Foreclosure Activity and Inventory figures). The Economy
In December 2014, according to the Bureau of Labor Statistics (BLS) Employment Situation report, the national unemployment rate decreased to 5.6% and nonfarm payroll jobs experienced gains of 252,000 jobs. Among all industries, professional and business services added the most jobs (+52,000), followed by construction (+48,000), and food services (+44,000). In November 2014, according to the Illinois Department of Employment Security (IDES) news release, the Illinois unemployment rate stayed at 6.4%, the lowest since June 2008. A total of 2,300 non-farm payroll jobs were added. Through November 2014, Illinois has added 298,700 new private sector jobs since February 2010 when Illinois employment growth resumed after the national recession. In November 2014, the one-year-ahead forecast for Illinois indicates that the non-farm employment will edge up at a rate between 0.97 % and 0.99%, corresponding to job gains between 56,700 and 58,100. The total gains are forecast to be contributed by eight out of ten sectors: professional and business services (2.91%; 26,500), education and health (1.84%; 16,400), trade, transportation and utilities (1.14%; 13,200), leisure and hospitality (1.47%; 8,100), financial activities (0.27%; 1,000), manufacturing (1.09%; 6,300), other services (1.52%; 3,900) and construction (0.34%; 700).
Longer-term Outlook
In December, the University of Michigan Consumer Sentiment Index increased to 93.6 – the highest since January 2007. Growth in jobs and wages and declines in the gasoline price were all contributors to consumers' optimism on current conditions and short-term expectations. According to their survey, consumers are expecting a gain of 1.7% in their annual income and the highest expectation are from group of people under 45 with an expected rate of 4.7%.
The Chicago Business Activity Index (CBAI) decreased to 101.4 in October from 103.5 in September. The fall is attributed to negative job growth in the manufacturing sector in the Chicago area
“Prices continued to record modest gains and sales recovered in December,” noted Geoffrey J.D. Hewings, Director of the Regional Economics Applications Laboratory, “while for the next quarter, sales are forecast to be more variable on a monthly basis although the annual changes are expected to be positive. Significant employment gains, declines in the unemployment rate and gas prices have all contributed to enhancing consumer expectations that hopefully will turn into more housing sales.
7
Average foreclosure inventory from 1997-2005
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Forecast for January 2015 report PERCENTAGE CHANGE FOR THE TOTAL NUMBER OF SALES Annual
Monthly
Illinois
Chicago PMSA
Illinois
Chicago PMSA
Oct-14
2.2%
-1.4%
1.4%
0.9%
Nov-14
-9.3%
-8.7%
-24.9%
-23.9%
Dec-14
-0.9%
-3.7%
14.7%
12.3%
-2.4%
-4.4%
-4.6%
-5.0%
3 Month Avg.
SUMMARY OF THE FORECAST INTERVALS FOR THE TOTAL NUMBER OF SALES Annual Illinois
Monthly
Chicago PMSA
Illinois
Chicago PMSA
Jan-15
14.3%
18.7%
13.0%
17.0%
-14.6%
-19.1%
-12.9%
-16.9%
Feb-15
9.7%
12.7%
11.1%
14.6%
-5.6%
-7.3%
-5.2%
-6.8%
Mar-15
-0.8%
-1.1%
3.5%
4.5%
10.9%
14.2%
16.5%
21.6%
3 Month Avg.
7.1%
9.3%
8.8%
11.5%
-4.1%
-5.4%
-1.5%
-2.0%
SUMMARY OF THE FORECAST FOR THE MEDIAN PRICE Illinois
Chicago PMSA
Illinois
Chicago PMSA
Oct-14
$158,000
$185,000
Sep-13
$155,000
$185,000
Nov-14
$155,000
$182,000
Oct-13
$150,000
$175,000
Dec-14
$154,000
$184,000
Nov-13
$145,000
$169,500
Jan-15
$144,892
$171,646
Dec-13
$148,500
$176,500
Feb-15
$142,596
$168,001
Jan-14
$135,800
$163,000
Mar-15
$155,752
$185,232
Feb-14
$132,005
$155,200
ANNUAL PERCENTAGE CHANGE OF THE MEDIAN PRICE Illinois
Chicago PMSA
Illinois
Chicago PMSA
Oct-14
5.3%
5.7%
Sep-13
11.5%
15.6%
Nov-14
6.9%
7.4%
Oct-13
11.9%
14.7%
Dec-14
3.7%
4.2%
Nov-13
7.4%
9.4%
Jan-15
6.7%
5.3%
Dec-13
13.4%
17.7%
Feb-15
8.0%
8.2%
Jan-14
8.6%
16.4%
Mar-15
5.2%
5.8%
Feb-14
6.5%
10.9%
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Forecast for December 2014 report PERCENTAGE CHANGE FOR THE TOTAL NUMBER OF SALES Annual
Monthly
Illinois
Chicago PMSA
Illinois
Chicago PMSA
Sep-14
-3.1%
-5.0%
-12.5%
-12.4%
Oct-14
2.2%
-1.4%
1.4%
0.9%
Nov-14
-10.2%
-8.7%
-24.9%
-23.9%
-3.1%
-4.8%
-12.1%
-11.9%
3 Month Avg.
SUMMARY OF THE FORECAST INTERVALS FOR THE TOTAL NUMBER OF SALES Annual Illinois
Monthly
Chicago PMSA
Illinois
Chicago PMSA
Dec-14
-0.8%
-1.0%
-3.2%
-4.3%
12.8%
16.9%
10.7%
14.1%
Jan-15
5.5%
7.2%
4.1%
5.5%
-20.7%
-27.3%
-19.3%
-25.5%
Feb-15
7.9%
10.5%
5.6%
7.4%
0.6%
0.8%
-2.2%
-2.9%
3.6%
4.7%
1.5%
2.0%
-3.4%
-4.6%
-4.3%
-5.7%
3 Month Avg.
SUMMARY OF THE FORECAST FOR THE MEDIAN PRICE Illinois
Chicago PMSA
Illinois
Chicago PMSA
Sep-14
$162,000
$195,000
Sep-13
$155,000
$185,000
Oct-14
$158,000
$185,000
Oct-13
$150,000
$175,000
Nov-14
$155,000
$182,000
Nov-13
$145,000
$169,500
Dec-14
$154,000
$184,000
Dec-13
$148,500
$176,500
Jan-15
$144,892
$171,646
Jan-14
$135,800
$163,000
Feb-15
$142,596
$168,001
Feb-14
$132,005
$155,200
ANNUAL PERCENTAGE CHANGE OF THE MEDIAN PRICE Illinois
Chicago PMSA
Illinois
Chicago PMSA
Sep-14
4.5%
5.4%
Sep-13
11.5%
15.6%
Oct-14
5.3%
5.7%
Oct-13
11.9%
14.7%
Nov-14
6.9%
7.1%
Nov-13
7.4%
9.4%
Dec-14
3.7%
4.2%
Dec-13
13.4%
17.7%
Jan-15
6.7%
5.3%
Jan-14
8.6%
16.4%
Feb-15
8.0%
8.2%
Feb-14
6.5%
10.9%
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