The Chicago area may not be dead last among 20 metro areas in home price appreciation over the last year but it sure is second to last. This is what the latest Case Shiller Chicago home price index for February is showing in this morning's release.
I've been tracking the year over year price increase data going back to January 1988 in the graph below and the Chicago area has been showing increases for more than 3 years. However, if you look at the graph closely you'll see that the price gains have recently been slowing down considerably. February single family home prices were up a measly 1.8% over last year, which is the lowest gain in the last 4 months, while condo prices were up a much healthier 2.8%.
With all the talk of how hot the Chicago real estate market is, with low inventories and multiple offers, where is the data to support this narrative? Well, there are a few factors at play here. For one, these Case Shiller numbers are for the entire metropolitan area which includes all the neighboring suburbs. In addition, this data is for properties that closed in the 3 month period ending in February. So there is a considerable lag here. What will be interesting to see is the index values for July. Will Chicago significantly rise in the rankings by then?
David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices, also discussed how home price gains have recently slowed across the nation:
Home prices continue to rise twice as fast as inflation, but the pace is easing off in the most recent numbers. The year-over-year figures for the 10-City and 20-City Composites both slowed and 13 of the 20 cities saw slower year-over-year numbers compared to last month. The slower growth rate is evident in the monthly seasonally adjusted numbers: six cities experienced smaller monthly gains in February compared to January, when no city saw growth. Among the six were Seattle, Portland OR, and San Diego, all of which were very strong last time.
David Blitzer then went on to lament about the supply shortage of homes across the nation:
While financing is not an issue for home buyers, rising prices are a concern in many parts of the country. The visible supply of homes on the market is low at 4.8 months in the last report. Homeowners looking to sell their house and trade up to a larger house or a more desirable location are concerned with finding that new house. Additionally, the pace of new single family home construction and sales has not completely recovered from the recession.
So....it sounds like a slower pace of price increases will be good news for home buyers, right? Also, keep in mind that while he is lamenting how low inventory is at a 4.8 month supply Chicago is down to roughly a 2.5 month supply of various home types in different areas of the city.
I've got the Chicago Case Shiller index plotted below going back to January 1987 with a trend line that was extrapolated from the pre-bubble data. Clearly recent price gains are not in line with that rate of appreciation and we are in fact currently lagging that line by 26.3%. Without the benefit of inflation at pre-bubble levels we may never catch up to that line.
The February index for single family homes dropped by 0.3% from January but that's normal for this time of year, as is evident from looking at the seasonally adjusted numbers which come out to a 0.9% gain. Meanwhile, the condo index actually rose by 0.3%.
To give you some historic perspective of where we've come from we are still 23.6% below the peak for single family homes and 18.0% below the peak for condos. However, single family home prices have recovered a total of 25.3% from the bottom while condos have recovered 35.7%. Yet, the average person who bought a single family home during the period from April 2003 - January 2009 is still underwater as is the average person that bought a condo between July 2003 - December 2009.
Gary Lucido is the President of Lucid Realty, the Chicago area's full service discount real estate brokerage. If you want to keep up to date on the Chicago real estate market, get an insider's view of the seamy underbelly of the real estate industry, or you just think he's the next Kurt Vonnegut you can Subscribe to Getting Real by Email using the form below. Please be sure to verify your email address when you receive the verification notice.