Chicago’s real estate market keeps jumping up and down like a yo-yo, with home sales hitting multi-year highs one month and then multi-year lows the next month. How any one month shakes out has a lot to do with the timing of when the sales close. If the time between contract and closing extends then one month’s “sales” gets depressed while the next month’s sales get a boost and vice versa. We can get a pretty good sense of whether or not this is happening by watching pending home sales and this metric is telling us that we are indeed experiencing timing issues these days.
After a weak October and strong November we just had a fairly weak December. Sales were down 5.0% from last year, giving us the weakest December in 4 years as you can see by looking at the graph below. In about 2 weeks the Illinois Association of Realtors will tell us that the decline was 7.2%.
Rather than focus on these month by month numbers we can get a better sense of the Chicago real estate market by watching that light blue moving average in the graph below since it smooths out all the monthly variations. That moving average is telling us that the market really has plateaued in the last 4 years.
Chicago Home Contract Activity
Also, instead of focusing on closings we can look at how many properties are going under contract each month. The only trouble with this metric is that not all contracts close. In fact about 15% of them eventually fall apart – and it can take a year for some of these deals to finally die. So we have to estimate how many of these are going to end up actually closing.
The graph below takes that natural contract decay into account and once again you see that activity has really plateaued in the last 4 years. Also, I’m estimating that December activity was down about 1.9% from last year and not much higher than it was 4 years ago.
Pending Home Sales
As I mentioned above pending home sales tell us a lot about how many contracts are hanging out there waiting to close. If more contracts are written in a given month than close or die then you should see an increase in this number. At the end of December there was a 1.77 month supply of pending home sales, up substantially from last December’s 1.61 month supply. That implies that there could have been a slowdown in closings for December that will goose the January numbers. For instance, 2 of our own deals that were supposed to close in December got pushed to January.
Distressed Home Sales
The percentage of home sales that are distressed continues to drop. We hit another low for December of only 14.6% compared to 17.9% last year. As we get closer to the bottom the drop from one year to the next necessarily gets smaller.
Chicago Home Inventory
Of course home sales are not helped by the fact that there just isn’t much available to buy by historic standards. We keep hitting new lows in months of supply. For instance we ended December with an incredibly low 2.2 month supply of condos and townhomes compared to an already low 3.0 month supply last year. Meanwhile, there was only a 3.5 month supply of single family homes compared to last year’s 4.6 month supply.
You can see just how far we’ve come in inventory reduction since the bubble burst in the graph below. Of course, as I always point out, this picture varies dramatically by neighborhood. Lately there have been a lot of single family homes available in upper end neighborhoods.
Chicago Home Sale Market Times
Of course, with lower inventories comes shorter market times, but only slightly shorter. In December condos and townhomes that actually sold did so in 79 days, down from last year’s 94 days. Single family homes sold in 86 days compared to last year’s 93 days. Again, we have a graph below that puts all of this in historic context.
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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.