Despite Falling Home Prices Housing Costs Have Gone Up

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With the steady stream of news that home prices continue to plunge in the Chicago area many buyers are waiting to find the bottom. Just yesterday the Case Shiller home price index for Chicago came out and it showed that area home prices have fallen for the 7th month in a row and continue to drop about 2% per month. So you would expect that the cost of owning a home is going down, right?
Wrong! In fact, home ownership costs actually bottomed in October 2010. By February they actually rose more than 8%, despite the fact that home prices have dropped by around 7.5% during this same period. How is that possible? Mortgage rates have risen during that same period and it doesn’t take a very big move in mortgage rates to offset a large decline in home prices.
Here is the long term trend in housing costs which takes into account home prices and mortgage rates. The actual bottom was hit in October 2010 when we revisited the lows of early 1987. Even now we are back to April 1987 levels but don’t expect these low costs to last long if mortgage rates continue to drift up.
Chicago Housing Cost Index

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