Chicago home prices continued to rocket ahead of last year, achieving awesome gains for the full year of 2013 according to this morning’s release of the Case Shiller home price index for December. Single family home prices were up 11.3% for the year – a 25 year record – while condominium prices were up a whopping 16.5%, which is a record gain since Case Shiller has been tracking condominium prices.
Compare these gains to the current outlook for home prices looking out for the next 5 years. 2013’s gains were way higher than the current outlook, which averages 3.7% per year.
Don’t be confused by the fact that both indices were actually down by 0.5% from November. It’s normal for home prices to decline in the late fall and winter but the declines this year were much less than in 2012.
The last time home prices were at these levels was the August/ September 2010 time frame, so at least we’ve recovered the losses of the last 3 1/2 years. Before that it was November 2002 when we last saw single family home prices at these levels and August/ September 2002 for condominium prices – that’s almost 12 years with no net home price appreciation.
Single family home prices have recovered 21.9% from the lows of March 2012, while condominiums have bounced back 30.1%. Yet single family home prices have dropped a total of 25.7% from the bubble peak and condominiums are down 21.8%. So people who purchased anywhere near the peak have a long way to go before getting back to even.
David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices, sounded a rather pessimistic note when commenting on the national picture:
…gains are slowing from month-to-month and the strongest part of the recovery in home values may be over. Year-over-year values for the two monthly Composites weakened and the quarterly National Index barely improved. The seasonally adjusted data also exhibit some softness and loss of momentum.
Recent economic reports suggest a bleaker picture for housing. Existing home sales fell 5.1% in January from December to the slowest pace in over a year. Permits for new residential construction and housing starts were both down and below expectations. Some of the weakness reflects the cold weather in much of the country. However, higher home prices and mortgage rates are taking a toll on affordability. Mortgage default rates, as shown by the S&P/Experian Consumer Credit Default Index, are back to their pre-crisis levels but bank lending standards remain strict.
Personally, I think the outlook for Chicago is much better, given that we have not yet seen the price increases realized by more than half of the cities tracked by Case Shiller. And note that red long term trend line in the graph above. We are 22.5% below where we would have been without the housing bubble. All we need is some job growth in the Chicago area to support that and that is not out of the question.
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