Just when I thought I'd take a break from reporting on the impact of the Covid-19 pandemic on the Chicago real estate market I run across this article: Chicago housing prices are on the rise. Here’s why. That article and headline are largely drawn from a Crain's article that makes the case that real estate prices are defying the crisis, pointing out that median home prices are running 2.9% ahead of last year, inventory is tight, the number of showings is increasing, and listings are getting multiple offers. But I've been telling you the sky is falling...so what's going on here?
Well, I'm not wrong. Of course not. And the Crain's data is not wrong either. The issue is how you interpret the data. First of all notice that the Crain's article is focusing on the entire Metro area whereas I've been focusing on just Chicago. I'll come back to that a bit later but first let's dig into the data.
Median Home Prices In The Chicago Area
The first thing I want to point out is one of my favorite dead horses. On several occasions I've explained how median home prices tell you nothing about home prices. It turns out that what's going on right now is a perfect example of just one of the points I made in that old post. In April Chicago median home prices rose by 9.2% over last year. Sounds impressive, right? However, instead of representing a 9.2% increase in home prices all it really represents is a shift in sales to more expensive homes as lower income home buyers have been hit much harder than upper income home buyers.
The data bears this out in no uncertain terms. Only 414 homes sold below $200K, which is a 36.4% drop from last year. However, there was only a 15.9% drop in home sales between $200 - 500K and an 11.9% drop in homes between $500 K - $1 MM. While there was a 37.8% drop in home sales above $1 MM that's a much smaller segment of the market - only 79 units sold in April. So that shift pretty much explains the increase in median home prices.
Now if you want to know how prices of homes are really responding you're going to have to wait a while for the Case Shiller numbers to come out. However, as I pointed out a month ago the Chicago home price futures are predicting a pretty bleak future.
I've been covering home inventory in my weekly updates on the impact of Covid-19 on the Chicago real estate market. Everyone is focusing on the absolute level of inventory, which is in fact down. But when you convert that to weeks of supply at the current rate at which contracts are being written inventory is actually up quite a bit from last year.
I haven't really been focusing too much on showing activity because it's only been available to me at the monthly level but I should have pointed out that, as you would expect, showing activity has been way down. March showings per listing in Chicago went from 5.8 last year to 4.8 this year while April showings went from 5.3 to 3.5. Yet the number of showings before you get a contract didn't really change. And that's why contract activity is so low. The buyers just aren't there.
That's not to say that things aren't getting better, which is Dennis Rodkin's point. He's the author of the Crain's article above and he was kind enough to call my attention to a graph available through ShowingTime which helps schedule our showings. These graphs look at showing activity - for all of Illinois - relative to the beginning of the year so you can't directly tell how it compares to last year. But I think it's safe to say that initially things got really bad and now they are quite a bit better though not quite back to normal.
We often hear about multiple offer situations in the context of a hot market but I never know what to make of those stories. First, this is always anecdotal information which I tend to ignore. And then you never know if the multiple offers were the result of the market being hot or if the subject properties were just underpriced. For instance, the Crain's article talks about a 2 bedroom Uptown condo that got 11 offers after only a few days on the market. Well, that unit was underpriced. It was a 1343 square foot unit priced at $290K compared to an 1170 square foot unit that sold for $286K in only 4 days back in early February. No wonder it got 11 offers.
Chicago Vs. The Suburbs
As I mentioned at the beginning of this post the Crain's article was looking at data for the entire metro area while I've been focused on Chicago. It turns out that the suburbs are doing better than the city and that could possibly reflect a sudden disenchantment with densely packed urban areas in light of the risks from contagion. There have been stories of the New York city suburbs seeing a boom in interest lately.
So how do I know the suburbs are doing better than the city? The clearest evidence is in the number of contracts being written. For April Chicago was down 51.6% from last year. Du Page county was only slightly better with a 45.4% decline. However, Kane county was only down 33.9% and Lake county was only down 36.8%. So any data for Chicago is probably going to look worse than it does for the entire metro area.
Anyway, as you can see it might be just a bit premature to declare victory for the Chicago real estate market. Things are slowly working their way back to normal but it's hard to imagine the market not being hurt as we inevitably hurtle towards recession.
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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 or get an insider's view of the seamy underbelly of the real estate industry 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.