If you simply look at how many home sales closed last month the Chicago real estate market looks reasonably healthy. Closings were down slightly from last year but only by 1.0%. Of course, the Illinois Association of Realtors will report that as a 2.6% decline because of a flaw in their methodology.
The graph below shows the history of monthly Chicago home sales going back to 1997 with all the February data points flagged in red and a light blue moving average. The one thing that really stands out in that graph is that sales seem to have plateaued lately. That moving average has flattened and the February data points haven’t really gone anywhere in the last 5 years. In fact, this February was not only lower than the previous year but it was also lower than 2016.
But there’s a bit more to the February story so you’ll need to read on. The market may be weaker than this one number indicates.
Chicago Home Contract Activity
The most significant development in February was that contract activity appears to have fallen off of a cliff. This is a number that I have to estimate because the historic numbers reflect contracts that fell apart and the contracts written in February haven’t aged sufficiently to know how many are going to ultimately fall apart. But based upon my estimates it looks like February had 16.2% fewer contracts written than last year. If my estimate proves to be correct this will be lower contract activity than 4 out of the previous 5 years and the largest decline in 82 months. The graph below puts this in perspective.
Since contracts are typically closed 1 – 2 months after they are written this does not bode well for March or April closings. We could very easily see steep sales declines in those months.
Pending Home Sales
To make matters worse pending home sales also fell to a 2.85 month supply, down from 3.17 months last year, which is also the lowest level since I’ve been tracking this metric. That basically means that we have a smaller backlog to close in the next month or two, which will further depress sales.
Distressed Home Sales
The percentage of total home sales that are distressed continues to decline as it has for the past 6 years and we keep hitting record lows. February is typically a peak month and we just peaked at 12.2% compared to 16.7% last year. My best guess is that in a few months we will cross the 10% threshold for the last time.
Chicago Home Inventory
Everyone is pretty sure that the exceptionally low inventory levels are behind the depressed sales activity. Nothing to buy = nothing to close. The graph below shows how the inventory of both attached (condos and townhomes) and detached homes for sale has continued to hit new lows. While the inventory of attached homes stayed constant in February at a 2.8 month supply that is exceptionally low. Meanwhile, the inventory of detached homes plummeted to a 3.5 month supply from 4.5 months last year.
Chicago Home Sale Market Times
Oddly enough we didn’t really see a decline in market times for either attached or detached homes in February. With such tight inventory you would expect to see that number falling as well – especially since months of supply is sort of a proxy for market time. Nevertheless, attached homes that sold did so in 97 days, which was actually up slightly from 96 days last year. And detached homes sold in 110 days, also up from 107 days last year. I can’t explain it unless a lot of the inventory is being cleared by listings being cancelled. That would depress inventory without affecting market times.
You can also find additional, regularly updated real estate market data on the Chicago area on our Web site.
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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.