Throughout much of the year Chicago home sales have been sputtering along - except for January and March, which were blowout months. Unfortunately, August was no exception with a 1.9% decline from last year - and that was after July came in with a 3.4% decline. Nevertheless, I maintain that the Chicago real estate market is still fundamentally strong. And I'm not just saying that because it's some talking point from the Chicago Association of Realtors (yeah, those really exist).
In about 2 weeks though the Illinois Association of Realtors will be telling you that sales declined by 4.5% from last year because of the peculiar way they do their calculation.
The graph below shows Chicago's home sale history going back to January 1997 along with red squares corresponding to all the August data points and a light blue 12 month moving average line. Staring at that light blue trend line makes it clear that home sales have really plateaued. But read on to find out why I'm not quite ready to put this real estate market on life support.
Chicago Home Contract Activity
Another indication of the weak home sales in the past and for at least a couple of months to come is seen in the contract activity data below. Notice how the light blue trend line is actually on the decline recently. In fact, 4 of the last 5 months showed declines from the previous year. I'm estimating that August will notch a 4.4% decline from last year, which would be lower than 3 of the last 5 years.
Pending Home Sales
Pending home sales explains the difference between contracts written and deals closed. If more deals close than there are contracts written it means pending home sales declined - and they did as happens at this time of year. However, we ended up with only a 1.61 month supply of pending home sales at the end of August vs. 1.71 last year so we've pulled more sales forward than we did last year.
Distressed Home Sales
It's the time of year when the percentage of home sales that are distressed rises as a result of lower inventory of non-distressed properties. Sellers of distressed properties have less choice in/ care less about when they list so they do so even during the slower times of the year. On the other hand non-distressed sellers hold back at this time of the year.
In August distressed sales were only 8.2% of the total vs. 12.4% last year - another record low for this time of the year.
Chicago Home Inventory
So this is where I conclude that the Chicago real estate market is actually healthier than you might think based on the sales data. Part I: Inventory is so low, and it keeps getting lower, that it's really hard for buyers to find anything and that's why sales are soft.
Condo/ townhome inventory fell to a 3.3 month supply from a 3.5 month supply last August. In case you didn't know that's extremely low. Anything below a 5 - 6 month supply is supposed to be a seller's market according to realtor folklore. And single family home inventory fell to a 4.5 month supply, down from a 5.2 month supply.
Chicago Home Sale Market Times
Part II of why the market is stronger than you might think: Homes are selling pretty darn fast - and condos keep selling faster. Condos/ townhomes that closed in August sold on average in only 51 days, down from 60 days last August. Single family homes actually took the same amount of time to sell this August as last - 79 days. With inventory so low it makes perfect sense that homes would sell fast.
You can always find much of this information along with other information such as employment statistics, foreclosure activity, and home prices on my Chicago real estate market page.
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.