One look at the graph below – all the red squares are December numbers – and it’s pretty obvious that the Chicago real estate market fell off a cliff in the last month of the year. Home sales were down 15.4% from last year, which is the biggest percentage drop in 7 1/2 years, resulting in the lowest sales level in 7 years.
Please note that when the Illinois Association of Realtors reports the numbers in two weeks they will show a 17.4% decline due to a flaw in their reporting methodology.
The other thing to notice in the graph below is that the light blue moving average line has been heading down now for several months. As you will read below I still maintain that the Chicago real estate market is fundamentally healthy and that what we are seeing is still due to a very tight housing supply.
Chicago Home Contract Activity
Since home sales typically close 1 – 2 months after a contract is signed you can get a more up to date read on current activity by looking at the number of contracts signed in a given month. Looking at the graph below you can see that contract activity closely mirrors the sales data above, with the moving average steadily declining for several months now.
December’s contract activity was down 9.2% from last year, depressing it to the lowest level in 7 years. This also suggests that January sales are going to be off.
Pending Home Sales
Pending home sales also gives us some insight into what to expect for actual closings in future months. I’ve been reporting this in terms of months of supply of pending home sales but it finally occurred to me that the actual units are more meaningful because lower sales levels would actually cause months of supply to rise, which would be a false indicator.
In the graph below you can plainly see that pending home sales have been steadily declining now for 7 years. Part of this must be the result of faster closes (perhaps more cash deals? fewer foreclosures?) as deal volume has not been dropping off that dramatically. December pending home sales were down 289 units from last year to 2767 or a 9.5% decline – sort of in line with the decline in contract activity. So that’s just further evidence that January is going to be soft.
Distressed Home Sales
As expected distressed home sales keep declining, hitting another record low. December of last year only had 9.1% distressed properties, which was down from 10.3% the previous year. But the decreases from year to year keep getting smaller and we’re probably close to the bottom now.
Chicago Home Inventory
The reason I think the Chicago real estate market is fundamentally strong is because inventory remains extremely low and, like they used to say at Circuit City, you can’t sell it if you don’t have it. And the inventory of detached homes is actually down significantly from the previous year – 3.2 months supply vs. 3.9 months supply. Attached inventory has gone in the opposite direction, rising from 2.6 months of supply to 3.0 months of supply, but that is still a very low level.
Chicago Home Sale Market Times
The other indicator that the real estate market is still strong is that market times remain low. Although the market time for attached homes that sold has risen slightly from 79 days to 83 days that’s still pretty fast and the market time for detached homes has actually fallen significantly – from 99 to 81 days. I don’t think market times would be this low, and even declining, if demand was weakening.
You can always check out our Web site for the latest Chicago area real estate market data, as we include some additional charts not shown here.
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.