Housing Price Forecasts Illinois and Chicago PMSA, July 2020 · 2 Months’ supply of inventory is...

Contact: Geoffrey Hewings 217-333-4740 ([email protected])

Jiyoung Chae 217-244-7226 ([email protected])

Housing Price Forecasts

Illinois and Chicago PMSA, July 2020

Presented To Illinois Realtors®

From

R E A L

Regional Economics Applications Laboratory,

Institute of Government and Public Affairs

University of Illinois

July 22, 2020

The economy is going through an incredibly volatile period right now. In June, the national

employment situation revealed a gain of 4.8 million jobs but as with the previous month, many of

those were recalls from employees laid off in the restaurant sector (the hotel sector continued to

shed jobs). However, there were increases in manufacturing, professional and business services,

education and health services. However, many analysts cautioned that the job additions occurred

in the early part of the month and that the recent spike in coronavirus cases in many southern and

western states may dampen the rate of recovery as the re-imposition of lock-down measures is

contemplated. Passage of a further stimulus package is now being debated in the US Senate;

when the nature and scope of the proposed legislation is released, it will be possible to make an

assessment on the national and state economies.

The economic uncertainties will translate into housing market fluctuations whose net impacts will

be difficult to assess. Increases in forbearance requests and mortgage delinquencies will begin to

have an impact on the housing market in months to come. As the Bureau of Labor Statsitics noted,

while the number of unemployed persons who were on temporary layoff decreased by 4.8 million

in June to 10.6 million, following a decline of 2.7 million in May, the number of permanent job

losers continued to rise, increasing by 588,000 to 2.9 million in June. The employment/population

ratio in Illinois was 53.4% in May 2020, a decline from 61.4% recorded in May 2019.

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Housing Forecast July 2020 2

Housing Price Forecast: Illinois and Chicago PMSA, July 2020

The Housing Market

In June, median prices experienced negative growth in Illinois and positive growth in the Chicago

PMSA while sales experienced a negative annual change in both Illinois and the Chicago PMSA.

14,921 houses were sold in Illinois, changing by 28.8% from a month ago and -11.8% from a year

ago. In the Chicago PMSA, 9,911 houses were sold, changing by 27.2% from a month ago and -

19.0% from a year ago. The median price was $222,000 in Illinois, down 1.3% from June last

year; the comparable figure for the Chicago PMSA was $267,000, up 1.6% from June last year.

The monthly boost in sales reflects the demand that was postponed in March and April during the

period of restrictions on movement in most of the state.

In June, for the Chicago PMSA, the percentage of foreclosed sales (e.g. REOs) among the total

sales was 7.1%. 9,137 regular sales were made, 20.3% less than last year. 693 foreclosed

properties were sold, 0.6% less than last year. The median price was $273,000 for regular property

sales, up 1.7% from last year; the comparable figure for the foreclosed properties was $187,200,

up 5.8% from this time last year.

Illinois and Chicago PMSA both have already recovered to their pre-bubble levels on average.

The median sales price in June 2008 has been adjusted to 2020 values to enable calculation of the

housing price recovery considering the effects of inflation. In Illinois, the June 2008 median sales

price was $166,500 (in $2008) and $199,386 (in $2020); the current price level was 111% of the

2008 level after adjusting (133% before adjusting). In the Chicago PMSA, the June 2008 median

sales price was $211,200 (in $2008) and $252,915 (in $2020); the comparable figure for price

recovery in June 2020 is 106% after adjustment (126% before adjusting).

The sales forecast for July, August and September suggests a decrease on yearly and monthly

basis for both Illinois and the Chicago PMSA. Annually for Illinois, the three-month average

forecasts point to a decrease in the range -11.7% to -15.8%; the comparative figures for the

Chicago PMSA are a decrease in the range -13.8% to -18.7%. On a monthly basis, the three-

month average sales are forecast to decrease in the range -7.0% to -9.5% for Illinois and decrease

in the range -6.0% to -8.1% for the Chicago PMSA.

The pending home sales index1 is a leading indicator based on contract signings. This June, the

number of homes put under contract was more than last year in both Illinois and the Chicago

PMSA. The pending home sales index is 239.9 (2008=100) in Illinois, up 36.8% from a year ago.

In the Chicago PMSA, the comparable figure is 276.2, up 39.3% from a year ago. At the latest

average annual pending sales rate, Illinois had enough housing inventory for 3.3 months2 (down

from 4.7 last year). In the Chicago PMSA, the comparable figure was 2.8 months (down from

4.0 last year). Months of supply for homes in the lowest price ranges (<100K) experienced

declines both in Illinois and the Chicago PMSA.

The median price forecast indicates negative annual growth for July, August, and September in

Illinois and slightly positive annual growth in the Chicago PMSA. In Illinois, the median price is

forecast to change by -1.9% in July, -3.8% in August and -1.6% in September. For the Chicago

PMSA, the comparable figures are 0.0% in July, 0.0% in August and 1.2% in September. As a

1 The base level (100) of pending home sales is the average pending home sales of year 2008. 2 Months’ supply of inventory is defined as inventory of homes for sale at the end of the month divided by the

average monthly pending sales in the last twelve months.


complement to the median housing price index (HPI), the REAL HPI3 forecasts a negative growth

trend for Illinois and a mixed growth trend for the Chicago PMSA. In Illinois, the REAL HPI

(Jan 2008=1) is forecast to change by -1.4% in July, -3.6% in August and -3.0% in September.

The comparable figures for the Chicago PMSA are 1.2% in July 0.5% in August and -0.6% in

September. REAL HPI takes housing characteristics into account and constructs comparable

“baskets” of homes for each month.

In June, both the Conference Board Consumer Confidence Index and the University of Michigan

Consumer Sentiment Index rose moderately. The Conference Board Consumer Confidence Index

survey revealed that the re-opening of the economy and relative improvement in unemployment

claims helped improve consumers’ assessment of current conditions, but the Present Situation

Index suggests that economic conditions remain weak. The University of Michigan Consumer

Sentiment Index survey noted that the early reopening in some parts of the country has helped to

restore jobs and incomes, but it has come at the cost of an increase in the rate of infections. The

more housing specific sentiment index, the Fannie Mae Home Purchase Sentiment Index (HPSI)

also increased. The survey revealed that a second month of improvement in June allowed the

HPSI to regain some of the sharp losses in optimism observed in March and April.

The Housing Market – Current Condition

• In June, median prices experienced negative growth in Illinois and positive growth in the

Chicago PMSA while sales experienced a negative annual change in both Illinois and the

Chicago PMSA. 14,921 houses were sold in Illinois, changing by 28.8% from a month ago

and -11.8% from a year ago. In the Chicago PMSA, 9,911 houses were sold, changing by

27.2% from a month ago and -19.0% from a year ago. The median price was $222,000 in

Illinois, down 1.3% from June last year; the comparable figure for the Chicago PMSA was

$267,000, up 1.6% from June last year. (Reference: Illinois and Chicago PMSA Total Home

Sales and Median Home Sales Price figures; Forecast for July 2020 report table)

• In June, for the Chicago PMSA, the percentage of foreclosed sales (e.g. REOs) among the

total sales was 7.1%. 9,137 regular sales were made, 20.3% less than last year. 693 foreclosed

properties were sold, 0.6% less than last year. The median price was $273,000 for regular

property sales, up 1.7% from last year; the comparable figure for the foreclosed properties

was $187,200, up 5.8% from this time last year. (Reference: Ratio of Foreclosed Sales over

Total Sales, Sales & Median Prices: Foreclosed vs. Regular figures)

• In June, at the latest average annual pending sales rate, Illinois had enough housing inventory

for 3.3 months4 (down from 4.7 last year). In the Chicago PMSA, the comparable figure was

2.8 months (down from 4.0 last year). Months of supply for homes in the lowest price ranges

(<100K) experienced declines both in Illinois and the Chicago PMSA. (Reference: Illinois

and Chicago PMSA Annual Months’ Supply by Price Range figures)

• In June, the market shares of homes in all price ranges did not change much compared to a

year ago. In Illinois, the market share for homes less than $100K increased to 14.3% from

13.6% a year ago; the comparative figure for the Chicago PMSA showed a decrease to 4.8%

from 5.0% a year ago. (Reference: Illinois and Chicago PMSA Price Stratification figures)

3 REAL HPI was developed by Esteban Lopez and Minshu Du. Contact us for further details. 4 Months’ supply of inventory is defined as inventory of homes for sale at the end of the month divided by the

average monthly pending sales in the last twelve months.


The Housing Market – Forecast and Future Condition

• The median price forecast indicates negative annual growth for July, August, and September

in Illinois and slightly positive annual growth in the Chicago PMSA. In Illinois, the median

price is forecast to change by -1.9% in July, -3.8% in August and -1.6% in September. For

the Chicago PMSA, the comparable figures are 0.0% in July, 0.0% in August and 1.2% in

September. (Reference: Forecast for July 2020 report table)

• As a complement to the median housing price index (HPI), the REAL HPI5 forecasts a

negative growth trend for Illinois and a mixed growth trend for the Chicago PMSA. In Illinois,

the REAL HPI (Jan 2008=1) is forecast to change by -1.4% in July, -3.6% in August and -

3.0% in September. The comparable figures for the Chicago PMSA are 1.2% in July 0.5% in

August and -0.6% in September. REAL HPI takes housing characteristics into account and

constructs comparable “baskets” of homes for each month. (Reference: Housing Price Index)

• The sales forecast for July, August and September suggests a decrease on yearly and monthly

basis for both Illinois and the Chicago PMSA. Annually for Illinois, the three-month average

forecasts point to a decrease in the range -11.7% to -15.8%; the comparative figures for the

Chicago PMSA are a decrease in the range -13.8% to -18.7%. On a monthly basis, the three-

month average sales are forecast to decrease in the range -7.0% to -9.5% for Illinois and

decrease in the range -6.0% to -8.1% for the Chicago PMSA. (Reference: Forecast for July

2020 report table)

• The pending home sales index6 is a leading indicator based on contract signings. This June,

the number of homes put under contract was more than last year in both Illinois and the

Chicago PMSA. The pending home sales index is 239.9 (2008=100) in Illinois, up 36.8%

from a year ago. In the Chicago PMSA, the comparable figure is 276.2, up 39.3% from a year

ago. (Reference: Illinois and Chicago PMSA Pending Home Sales Index figure)

• In June 2020, 229 houses were newly filed for foreclosure in the Chicago PMSA (down 80.2%

and up 97.4% respectively from a year and a month ago). 480 foreclosures were completed7

(down 38.2% and down 5.5% respectively from a year and a month ago). As of June 2020,

there are 21,441 homes at some stage of foreclosure — the foreclosure inventory. The

monthly average net flows of foreclosures (foreclosure inflows - outflows) were 209 in the

past 6 months, 367 in the last 12 months and 473 in the last 24 months. (Reference: Chicago

PMSA Foreclosure Inflows and Outflows, and Inventory figures).

The Economy

• In June 2020, according to the Bureau of Labor Statistics (BLS) Employment Situation report,

the national unemployment rate declined to 11.1% and nonfarm payroll jobs experienced a

gain of 4.8 million jobs. These improvements in the labor market reflected a limited

resumption of economic activity that had been curtailed in March and April due to the

coronavirus (COVID-19) pandemic and efforts to contain it. Employment rose sharply in

leisure and hospitality (+2.1 million), retail trade (+740,000), and education and health

services (+568,000).

• In May 2020, according to the Illinois Department of Employment Security (IDES) news

release, the Illinois unemployment fell to 15.2%. Non-farm payroll jobs rose by 62,200 over

5 REAL HPI was developed by Esteban Lopez and Minshu Du. Contact us for further details. 6 The base level (100) of pending home sales is the average pending home sales of year 2008. 7 Including cancelled foreclosures and auctions


the month. The largest average increases were found in Leisure and Hospitality (30,100),

Manufacturing (14,500), and Professional and Business Services (16,100).

• In March 2020, the one-year-ahead forecast for Illinois indicates that the non-farm

employment will change at a rate between -0.87% and -0.80%, corresponding to job loss

between -53,100 and -12,700. The largest contributors to the forecast decrease are

professional and business services, trade, transportation and utilities, and manufacturing. (not

updated)

• In June 2020, CoreLogic expected summer home price slump. “Home-purchase activity,

bolstered by record-low interest rates, continues to exceed expectations despite the severe

recession.” said Frank Martell, president and CEO of CoreLogic. “Pent-up buyer demand was

delayed from spring to summer and is reflected in the latest price data.”

• In June 2020, new data from apartment rental website RentCafe has quantified yet another of

the outbreak’s impacts: for 43% of renters ready to buy, the pandemic has, at least for now,

hindered the path to homeownership. The survey reported that as a generation that has already

weathered financial uncertainty with previous economic crises, a considerable percentage of

them are decided to find their footing amid financial uncertainty and not let current events

stop them from owning a home.

• As noted on the front page, while the number of temporary job losers has declined, the number

that have suffered a permanent job loss has increased. Given the increase in requests for

forbearance and the increase in delinquent mortgages, this combination of factors may dampen

market demand in the months ahead.

Longer-term Outlook

• In June, both the Conference Board Consumer Confidence Index and the University of

Michigan Consumer Sentiment Index rose moderately. The Conference Board Consumer

Confidence Index stands at 98.1, up from 85.9 last month. The survey noted that the re-

opening of the economy and relative improvement in unemployment claims helped improve

consumers’ assessment of current conditions, but the Present Situation Index suggests that

economic conditions remain weak. The University of Michigan Consumer Sentiment Index

increased to 78.1 from 72.3 last month. The early reopening in some parts of the country has

helped to restore jobs and incomes, but it has come at the cost of an increase in the rate of

infections, said U-M economist Richard Curtin, director of the surveys.

• In June, Fannie Mae Home Purchase Sentiment Index (HPSI) rose to 76.5 from 67.5 last

month, building further on the prior month’s advance after approaching a survey low in April.

The survey reported that a second month of improvement in June allowed the HPSI to regain

some of the sharp losses in optimism observed in March and April.

• The Chicago Business Activity Index (CBAI) decreased to 85.1 in May from 91.1 in April.

However, with an improvement in expected retail sales, we can observe a positive

manufacturing, nonmanufacturing, and construction job growth from the base effect.

“The Illinois and Chicago housing markets both recorded positive month to month increases in

sales, although declines on a yearly basis” noted Geoffrey J.D. Hewings, Director of the Regional

Economics Applications Laboratory. “The Illinois market recorded the second consecutive month

of price decreases while the Chicago market maintained very modest price growth; the declines

are expected to continue in Illinois but the changes will be very close to zero in Chicago over the

next three months.”


Forecast for July 2020 report

Apr-20

May-20

Jun-20

Jul-20 -13.1% -17.7% -16.9% -22.9% -5.0% -6.7% -3.6% -4.9%

Aug-20 -10.8% -14.6% -13.2% -17.9% -0.7% -0.9% -0.5% -0.6%

Sep-20 -11.0% -14.9% -10.4% -14.1% -15.7% -21.2% -14.0% -19.0%

-11.7% -15.8% -13.8% -18.7% -7.0% -9.5% -6.0% -8.1%

Apr-20 Apr-19

May-20 May-19

Jun-20 Jun-19

Jul-20 Jul-19

Aug-20 Aug-19

Sep-20 Sep-19

Apr-20 Apr-19

May-20 May-19

Jun-20 Jun-19

Jul-20 Jul-19

Aug-20 Aug-19

Sep-20 Sep-19-1.6% 1.2% 1.5% 1.1%

-1.9% 0.0% 2.2% 3.5%

-3.8% 0.0% 6.5% 3.5%

-1.6% 0.2% 1.9% 2.2%

-1.3% 1.6% 0.4% 0.2%

ANNUAL PERCENTAGE CHANGE OF THE MEDIAN PRICE

Illinois Chicago PMSA Illinois Chicago PMSA

6.6% 6.7% 1.4% 1.2%

$204,838 $251,111 $213,000 $251,000

$196,718 $242,837 $200,000 $240,000

$222,000 $267,000 $225,000 $262,900

$214,688 $258,883 $218,800 $259,000

$227,000 $270,000 $213,000 $253,000

$215,500 $260,000 $219,000 $259,500

3 Month Avg.

SUMMARY OF THE FORECAST FOR THE MEDIAN PRICE


SUMMARY OF THE FORECAST INTERVALS FOR THE TOTAL NUMBER OF SALES

Annual Monthly


-11.8% -19.0% 28.8% 27.2%

3 Month Avg. -19.8% -24.0% 7.0% 4.8%

-13.2% -15.0% -0.8% -0.1%

-33.0% -36.6% -5.7% -10.4%

PERCENTAGE CHANGE FOR THE TOTAL NUMBER OF SALES

Annual Monthly



Median Prices and Recovery

Illinois Chicago PMSA

[$2008] [$2020] [$2008] [$2020]

June 2008 Median Price $166,500 $199,386 $211,200 $252,915

June 2020 Median Price $185,384 $222,000 $222,962 $267,000

Price Ratio

(June 20/ June 08)

Adjusted 1.11 Adjusted 1.06

Unadjusted 1.33 Unadjusted 1.26

Recovery Forecasts using Annually Growth Rates

Illinois Chicago PMSA

Annual

Recovery Rate*

Years to

Recover** Recovery Rate

Years to

Recover

Current Month -2.1% 5.1 0.8% -6.8

Past 3 months 0.8% -14.2 2.4% -2.3

Past 6 months 2.1% -5.1 2.8% -2.0

Past 9 months 2.7% -4.1 2.6% -2.1

Past 12 months 2.4% -4.5 2.2% -2.5

*Annual recovery rate is the average of annual change rates in past months

** Years to recover is calculated using the following formula:

PriceJune2020*(1+recovery rate)^years=PriceJune2008. Prices used in the formula are inflation

adjusted. The recovery rate is applied as a constant annual change rate to recoup the differences

between the current month and its corresponding month in 2008.

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