This morning's release by Dow Jones S&P CoreLogic of the Case Shiller home price index for August showed that the nation's single family home prices slowed down their annual rate of appreciation and fell below 6% for the first time in 12 months. At the national level the appreciation rate fell from 6.0% last month to 5.8% this month but the appreciation rate for the top 20 metro areas fell to 5.5% from 5.9%. Meanwhile, the year over year gain for the Case Shiller Chicago area index remained at 2.9%.
However, Chicago's ranking among the top 20 metro areas actually rose to 3rd from last place - only because New York dropped to a 2.8% annual rate this month. Woohoo!
The annual rate of appreciation for condos in the Chicago area actually slowed further, dropping to 2.5%, which is the slowest rate in almost 4 years. I have both the monthly condo and single family home annual appreciation rates graphed below going back to 1988. We now have 70 consecutive months of annual gains in both of these measures but you should note that the rate of appreciation for condos in the Chicago area has been lagging single family homes for the last 3 months. This is a recent phenomenon.
David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices, drew parallels among various housing data but sees no reason to panic:
Comparing prices to their levels a year earlier, 14 of the 20 cities, the National Index plus the 10-city and 20-city Composite Indices all show slower price growth. The seasonally adjusted monthly data show that 10 cities experienced declining prices. [Frankly, I don't see this in the data so I'm not sure what he's talking about] Other housing data tell a similar story: prices and sales of new single family homes are weakening, housing starts are mixed and residential fixed investment is down in the last three quarters. Rising prices may be pricing some potential home buyers out of the market, especially when combined with mortgage rates approaching 5% for 30-year fixed rate loans.
There are no signs that the current weakness will become a repeat of the crisis, however. In 2006, when home prices peaked and then tumbled, mortgage default rates bottomed out and started a three year surge. Today, the mortgage default rates reported by the S&P/Experian Consumer Credit Default Indices are stable. Without a collapse in housing finance like the one seen 12 years ago, a crash in home prices is unlikely.
Case Shiller Chicago Area Home Price Index By Month
The graph below shows the monthly Case Shiller Chicago area home price indices for both condos and single family homes going back to 1987. I've also extended this back to 1970 if you are interested: Chicago Area Home Price Trends From 1970 - 2018.
The August home price index for single family homes was up 0.2% from July while the condo index rose 0.1%. As you can see in the graph there is considerable seasonality in the index and we are now entering the time of year when price appreciation slows and eventually goes negative.
The Chicago area is one of the few markets in the country that has not returned to their bubble peak. Single family home prices are still 13.8% below the peak, despite rising 41.4% from the bottom. Condo prices have done a bit better, falling short by a much smaller 6.7% and having risen by 54.4%. That means that single family home prices are currently lower than they were during the entire period from from August 2004 - October 2008 while condo prices are lower than the period from June 2005 - October 2008.
You will also note in the graph below that I've included a red trendline for single family home prices based on the pre-bubble period. We continue to trail that trendline by 24.1%.
Gary Lucido is the President of Lucid Realty, the Chicago area's full service real estate brokerage that offers home buyer rebates and discount commissions. 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.