It’s official. The housing recovery has reached the Midwest. The latest numbers from the S&P/Case-Shiller Home Price Index show that Chicago, in particular, is experiencing a sustained recovery in house values.
Home prices in the Chicago metro area fell sharply during the housing bust, as they did in most major cities across the country. But now they are on the rebound. According to the Case-Shiller Index, Chicago home prices jumped 3.2% from June to July of this year. That puts it ahead of all other metro areas in the 20-city index, in terms of monthly price gains.
The Case-Shiller Index is published on the last Tuesday of every month. This widely cited report highlights monthly and annual price trends at both the national and city level. The 20-city index includes pricing trends for 20 of the largest metro areas in the country. The last report was published on September 24 and contained data through the end of July 2013.
RE/MAX: Median Sale Price Up 18% in August
According to a recent RE/MAX report, the median sale price for homes in the Chicago area rose 18% in August, compared to the same month last year.
Sales volume has also increased sharply over the last year. Of the 52 metro areas included in the RE/MAX report, Chicagoland had the second-largest increase in sales. In August, residential real estate sales across the Chicago metro area jumped 26.7% compared to the same month in 2012.
Reduction in Distressed Sales Good for Local Housing Market
We are seeing positive trends on the foreclosure front, as well. Distressed sales (a category that includes foreclosures and short sales) have declined over the last year. Across the metro area, distressed home sales accounted for 28% of all transactions in August 2013, down from 38% a year earlier.
This reduction benefits the Chicago housing market in several ways. Most notably, it reduces the number of “bargain priced” homes on the market at any given time. Distressed properties are frequently sold for less than their true market value. So they put downward pressure on local home prices. A reduction in distressed sales, as a percentage of total market activity, is a boon for the Chicago real estate market.
Chicago Supply-and-Demand Picture Points to Additional Gains
You can’t talk about home prices without discussing supply and demand. Chicago is currently experiencing positive developments on both sides of this equation. Housing demand is growing across the metro area, as evidenced by the aforementioned increase in home sales. At the same time, inventory has decreased year-over-year.
According to Realtor.com, one of the largest property listing websites in the country, the number of homes listed for sale across Chicagoland has dropped by 7.48% over the last year. It’s no wonder homes are selling faster now than they did a year ago. Realtor.com also reports a 13.95% increase in the median list/asking price for the Chicago housing market.
Condo sales within the city rose by more than 23% in August, compared to a year ago. This is according to a recent report by the Illinois Association of Realtors (IAR). The median price paid for Chicago condos rose 17.6% over the same period, the IAR reported. In August of this year, 1,775 condo units were sold at a median sale price of $282,250.
Chicago Mortgage Rates Could Remain Low, Enticing Buyers
Over the past few weeks, there was much concern that rising mortgage rates would slow the nascent housing recovery seen in Chicago and other U.S. cities. That hasn’t happened. Yes, rates rose by more than a full percentage point from May to September of this year. And yes, it put a serious crunch on mortgage refinancing activity. But it hasn’t deflated the housing rebound.
Here’s more good news on the rate front. The Federal Reserve recently announced it will continue buying bonds and securities for the time being. This quantitative easing policy, as it is known, has helped keep Chicago mortgage rates low for many months. A continuation of the policy will likely have the same effect. Some have speculated there will be no tapering of Fed stimulus until 2014.
The bottom line is that Chicago-area home buyers will enjoy low rates for the foreseeable future. This will bolster demand and further fuel the local real estate recovery.
Disclaimer: This story makes forward-looking statements about local housing conditions, mortgage rates, and other economic trends. Such statements should be viewed as matters of opinion, and not facts. We make no guarantees or claims about future conditions within this or any other real estate market.