Case Shiller: Chicago Home Prices Falling

Case Shiller: Chicago Home Prices Falling

Chicago home prices may actually be falling. At least that’s what some of the data from this morning’s release of the Case Shiller Chicago home price index for July seems to indicate. It’s complicated.

This month’s release shows the chart below that they have not produced before. It ranks the 20 metro areas that they track by their seasonally adjusted one month change in home prices and Chicago falls in last place (yes, even behind Detroit) with a 1.2% decline. In case you are not familiar with seasonal adjustments it basically attempts to remove that portion of the change that you would expect to occur simply based upon the time of the year.

There’s actually 3 problems with this analysis, though I believe the rankings are approximately correct no matter how you look at the data. First, it’s only looking at a one month change, which is a pretty short time frame. There can be too much volatility from one month to the next. I prefer to look at the data year over year (see the next section below). Second, I just don’t understand Case Shiller’s seasonal adjustment methodology because it looks like they use different adjustment factors for different years and I don’t know how you would ever decide that that is appropriate. And finally, lately the Case Shiller people have been revising their indices with each release. In particular the June release, which July is obviously being compare against, was substantially revised upward this month. Will July be similarly revised?

Case Shiller Seasonally Adjusted By City

A much simpler, more straight forward, analysis is to look at the Chicago area home price changes on a year over year basis, which is what I always show in the graph below. Both single family home prices and condo/ townhome prices are not tracking anywhere near as high as they were back in 2013 and 2014. Single family home prices were up 1.8% in July vs. last year, which puts Chicago in second to last place among the 20 metro areas – behind Washington. Condo/ townhome prices on the other hand were actually up a respectable 4.6% over last year, which is the highest level of this metric in the last 4 months.

As I’ve been saying all along, it’s actually surprising that we’re not seeing higher levels of home price appreciation in the Chicago area given just how low inventory levels have been.

Case Shiller Chicago Year Over Year

The graph below shows the underlying index values along with the underlying trend that I extrapolated from the pre-bubble years. Without seasonal adjustments single family home prices were up 0.9% from June and condo/ townhome prices were up 0.7%.

There has been a lot of discussion on CribChatter over the last year about how prices in the “Green Zone” are past peak and how Crain’s reported that many Loop buildings are close to peak prices but that’s not what the Case Shiller data shows for the broader Chicago metro area. In fact, single family home prices are still 20.9% below peak, though they’ve recovered a total of 29.8% from the bottom of the market. Condo and townhome prices have done a lot better and are only 15% below the peak, having recovered 40.7% from the bottom.

From a historic perspective single family home prices are below the level during the entire time period from August 2003 through January 2009 while condos and townhomes are still below the levels hit from January 2004 through February 2009.

As for that long term trend line…we’re still lagging it by 22.1% and we may never catch up to it unless the local economy really takes off.

Case Shiller Chicago

A lot of people are worried about the impact of rising interest rates on housing prices but according to David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices: “An interest rate increase by the Federal Reserve, now expected in December by many analysts, is not likely to derail the strong housing performance.” But he doesn’t really explain why he believes this. Possible explanations include: 1) historically it hasn’t happened 2) the expected rate increases won’t be that great for quite some time. 3) Inventory levels aren’t that high – at least for now.

#CaseShiller #Realestate #HomePrices

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. Please be sure to verify your email address when you receive the verification notice.

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