As I told you they would earlier this month in my March Chicago real estate market update, the Illinois Association of Realtors reported yesterday that median home prices in Chicago rose by 26.7% in March from the prior year. The Chicago Tribune reported this fact with this characteristically misleading statement by the media: "Prices continue to improve". One would think that home prices are rising by 26.7% from this statement but, as I've pointed out recently, nothing could be further from the truth.
Although I've probably already beaten this topic to death the magnitude of this increase and the high visibility in the media prompted me to take one more run at debunking this type of hype. The last example I used in my explanation was based on a fairly small data set, which could cause some to dismiss the example. In the case of the March data reported yesterday we are looking at a much larger data set for the entire city of Chicago - and there are still problems.
First, about 38% of the 2014 sales were lower priced single family homes whose median price rose by only 7.1%. The rest were condos and townhomes whose median price rose by 22.8%. So the the change in median price of everything was primarily driven by, and actually greater than, the change in the median price of condos and townhomes - even though the mix of single family homes really didn't change that much from 2013 to 2014. That peculiar result comes from the fact that the mix of what sold within those two housing classes changed in complex ways.
Then if we look closer within condos and townhomes at what exactly we are comparing between 2013 and 2014 we see that it really is apples and watermelons - it depends upon the composition of the fruit salad. Remember, the median sales price corresponds to a specific property sold. The 2013 median price of $232,000 corresponds to a 2 bedroom/ 1 bathroom 1000 sq ft unit 1301 at 345 N Canal that was sold by a bank without a parking space and really terrible photos. The 2014 median price of $285,000 corresponds to a 1 bedroom/ 1 bathroom 800 sq ft unit 301 at 2111 W Churchill St. in Bucktown that was sold with parking.
Here is what the Canal property looked like
And here is what the Churchill property looked like
That's why if you really want to know what is going on with home prices the only statistic worth paying attention to is the Case Shiller home price index, which uses a much more sophisticated methodology. They actually look at repeat sales of the same property and construct an index from multiple properties over time. Stay tuned for the next release which comes out on Tuesday.
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