After a modest increase in home sales in May the Chicago real estate market once again retreated in June, down 5.5% from last year and dropping to a lower level than even 2 years ago also. Basically, it remains a story of gradually declining sales, punctuated by occasional noise that could be misinterpreted as market strength.
You can see this in the graph below where I have flagged all the June numbers with little red squares and also plotted a 12 month moving average. Although the graph shows this June below 2015, I expect that once the rest of the data comes in we will actually surpass that level. You will also note how the moving average is recently trending downward.
The Illinois Association of Realtors will report on these numbers in a couple of weeks and we can expect them to claim that June home sales fell 8.6% because of a flaw in their methodology.
Chicago Home Contract Activity
The leading indicator of home sales/ closings is contract activity. It usually leads by about 1 – 2 months and June was the 5th month in a row with a decline in this measure from last year – down by a fairly hefty 9.4%, but that wasn’t even the largest decline of the last 5 months. Furthermore, June had the lowest contract activity of the last 6 years. As you can see in the graph below these negative readings are causing the light blue moving average line to dip downward, which cannot be good news for closings.
Pending Home Sales
Meanwhile, the backlog of homes that are under contract, waiting to close, continues to shrink and is sitting at record lows. This is significant because all closings ultimately come through this pipeline, filled at one end by new contracts written and emptied at the other end when they close. So, if this pipeline is shrinking that means the pipeline is being emptied faster than it’s being refilled. That is not sustainable and ultimately it has to contribute to a decline in closings.
The graph below shows pending home sales in terms of months of supply at current sales rates. June ended at a 1.58 month supply, down from 1.65 months last year. Not a good omen for the future.
Distressed Home Sales
The percent of home sales that are distressed has been on the decline for 7 years now as shown in the graph below. However, as can be plainly seen, as we approach zero the annual decline necessarily is slowing down. So, while June did in fact hit the lowest percentage since I’ve been tracking it – 6.2% – we’re rapidly reaching the bottom of what’s possible and the trendline is bottoming out.
Chicago Home Inventory
Home inventory levels continue to decline and hit record low levels. And with fewer homes for sale it’s hard for us to show sales gains.
For June there was actually a small uptick in attached home (condos, townhomes) inventory, which rose from a 3.5 month supply last year to a 3.8 month supply this year. However, detached home inventory really plummeted from a 5.1 month supply to a 3.8 month supply. This is also the first time in 7 years that the inventory of attached homes is at the same level as detached homes. Historically, attached homes have a significantly lower inventory level.
Chicago Home Sale Market Times
Consistent with the tight inventory story above, market times have been pretty low. Attached homes that sold in June did so in only 55 days, up slightly from 50 days last year in light of the higher inventory levels. Meanwhile, with tighter inventory of detached homes, market times declined to 75 days, down from 81 days last year.
In case you would like additional information we also maintain this and other data for the Chicago area real estate market on our Web site.
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.