Dow Jones S&P CoreLogic released the November Case Shiller home price indices this morning and the nation's home prices are doing really well - especially out west. Home prices rose by 6.2% over last year while the top 20 metro areas averaged gains of 6.4%. But Chicago area home prices...meh.
As the graph below shows, the Case Shiller Chicago area index did register it's 61st consecutive month of annual home price gains for single family homes at 3.6%. However, that still puts us in second to last place among the 20 metro areas - just a tad above Washington DC which was up only 3.3%.
At the other end of the spectrum Seattle remains in the #1 position with home prices up 12.7%. No wonder Amazon needs to look elsewhere for expansion. They should definitely come to Chicago because our homes become more affordable relative to the rest of the nation every day.
Condo prices in the Chicago area showed much greater strength - up 4.9% over last year, which was the highest year over year growth in 9 months.
David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices, provided a really good explanation of what is causing home prices to rise faster than inflation:
Home prices continue to rise three times faster than the rate of inflation. The S&P CoreLogic Case-Shiller National Index year-over-year increases have been 5% or more for 16 months; the 20-City index has climbed at this pace for 28 months. Given slow population and income growth since the financial crisis, demand is not the primary factor in rising home prices. Construction costs, as measured by National Income and Product Accounts, recovered after the financial crisis, increasing between 2% and 4% annually, but do not explain all of the home price gains. From 2010 to the latest month of data, the construction of single family homes slowed, with single family home starts averaging 632,000 annually. This is less than the annual rate during the 2007-2009 financial crisis of 698,000, which is far less than the long-term average of slightly more than one million annually from 1959 to 2000 and 1.5 million during the 2001-2006 boom years. Without more supply, home prices may continue to substantially outpace inflation.
Looking across the 20 cities covered here, those that enjoyed the fastest price increases before the 2007-2009 financial crisis are again among those cities experiencing the largest gains. San Diego, Los Angeles, Miami and Las Vegas, price leaders in the boom before the crisis, are again seeing strong price gains. They have been joined by three cities where prices were above average during the financial crisis and continue to rise rapidly – Dallas, Portland OR, and Seattle.
Case Shiller Chicago Area Home Price Index By Month
Single family home prices fell 0.4% from October, which is normal at this time of the year, but condo prices actually rose from October - up 0.3%. The graph below puts all the monthly index values in perspective and you can see just how much further we have to go in order to get back to the bubble peak. Single family home prices are still 17.3% below that level while condo prices are only 9.2% below that level.
For further historical perspective I like to also point out that single family home prices are lower than they were during the entire period from April 2004 - November 2008. The period with higher condo prices than today is a bit tighter, running from March 2005 - December 2008.
And there is one other way to look at where we are. In the graph below I have drawn a red trend line to show where home prices would have been if the housing bubble had never happened and home prices had simply continued to grow at the rate they had been prior to the bubble. On that basis we are currently 25.1% below where we "could have been".
But at least we've made a lot of progress from the bottom of the housing crisis. Single family homes are now 35.8% above where they were back then and condo prices are 50.2% higher.
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.