There is definitely some good news in this morning’s release of the Dow Jones S&P CoreLogic Case-Shiller home price index for August (4 different entities have to get their name on that thing). At the national level single family home prices rose 6.1% year over year, hitting a new all time high. And the Case Shiller Chicago area index clocked the 58th straight month of year over year gains as you can see in the graph below.
However, the bad news is that, with a paltry 3.7% year over year gain, the Chicago area is in second to last place for year over year home price gains among the 20 metro areas that Case Shiller tracks – barely edging out Washington DC. Chicago condo home prices did a little better with a 4.2% year over year gain. Both single family home and condo prices in the Chicago area showed the strongest year over year gains in 4 months.
And just so you can envy Seattle, their home prices rose by 13.2% from last year.
David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices, painted an interesting contrast between the rise in home prices and overall inflation:
Most prices across the rest of the economy are barely moving compared to housing. Over the last year the consumer price index rose 2.2%, driven largely by energy costs. Aside from oil, the only other major item with price gains close to housing was hospital services, which were up 4.6%. Wages climbed 3.6% in the year to August.
Blitzer then went on to point out what has been driving home prices up and that the party won’t last forever:
The ongoing rise in home prices poses questions of why prices are climbing and whether they will continue to outpace most of the economy. Currently, low mortgage rates combined with an improving economy are supporting home prices. Low interest rates raise the value of both real and financial long-lived assets. The price gains are not simply a rebound from the financial crisis; nationally and in nine of the 20 cities in the report, home prices have reached new all-time highs. However, home prices will not rise forever. Measures of affordability are beginning to slide, indicating that the pool of buyers is shrinking. The Federal Reserve is pushing short term interest rates upward and mortgage rates are likely to follow over time, removing a key factor supporting rising home prices.
Case Shiller Chicago Area Home Price Index By Month
August single family home prices rose by 0.4% over July while condo prices rose by 0.2%. Looking back over the 30 year history of Chicago area home prices you can clearly see that we are not one of those nine metro areas that have reached new all-time highs. In fact, our single family home prices are still 16% below the bubble peak and our condo prices are still 8.9% below the peak, though the two indices have recovered by a total of 37.8% and 50.8% respectively.
Besides just comparing current prices to the bubble peak I also like to look at the entire historic period during which home buyers paid more on average than their homes are worth today. For single family homes that would be the period from May 2004 until November 2008 and for condos that would be the period from April 2005 until December 2008.
Keep in mind that all this is an average for the entire Chicago metro area. My last blog post was on how home prices have changed over time for different areas within Cook County and the differences are dramatic.
And that red line in the graph below is a trend line for Chicago area home prices that I created based upon pre-bubble single family home price history. Yes, inflation was higher back then but clearly home prices don’t necessarily track inflation. So it’s a bit disconcerting that we are still 23.3% below that line.
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.