September Chicago Real Estate Market Update: Home Sales Still Soft

As has been the case almost all year, the Chicago real estate market continued to show signs of weak sales in September. But I still believe that the market is fundamentally strong for the same reasons I’ve been pointing out in previous blog posts.
Chicago home sales fell by 7.2% from last September, which is at the higher end of the year over year declines we’ve seen so far this year but still better than the huge drop in August. When the Illinois Association of Realtors releases their version of the numbers in 2 weeks they will show a 8.9% drop, as their numbers always look worse than mine. A decline of this magnitude was pretty much already in the cards during August given some of the other indicators and this is probably not the last of the declines this year.
The graph below shows Chicago’s monthly home sales going back to 1997 with all the Septembers flagged in red and a blue moving average. With the recent declines you can see how the moving average has been drifting down. Yet 2014 consistently ranks as the second highest year of the last 7 and somewhat higher than 2001, before things really took off.
Chicago monthly home sales

Chicago Home Contract Activity

Chicago’s contract activity gives us great visibility into what is likely to happen with future months’ sales by virtue of the fact that properties typically close 1 – 2 months after going under contract. The graph below shows that September contracts were actually up slightly – about 1.4% over last year, which is not really a significant amount. I wouldn’t count on that having much of a positive effect going forward in light of the fact that the blue moving average line below shows an overall downward trend.
Chicago home sale contract activity

Pending Home Sales

Another slightly positive indicator for future sales is the fact that pending home sales ticked up in September as you can see in the graph below, which is expressed in months of sales. However, at 1.8 months it’s still a pretty meager level compared to historic averages so there is not that great of a backlog of deals waiting to close.
Chicago pending home sales

Distressed Home Sales

This is probably the most telling graph in terms of what is going on with the Chicago real estate market. As I’ve pointed out on numerous occasions there just aren’t as many distressed properties for sale as there used to be and that’s what’s primarily driving the sales figures down. In fact, if we take out distressed properties sales of non-distressed properties was actually up 1.4%. On a percentage basis distressed sales hit another 6 year low of 18.8%.
So that’s one of the main reasons why I’m not that concerned that home sales continue to drop in Chicago.
BTW, the Illinois Association of Realtors will be sure to point out the 8.7% increase in median home prices over last year. But the fact that there are fewer distressed properties for sale as a percentage of the total pretty much explains why median prices are up and it’s really not worth focusing on.
Chicago Distressed Home Sales

Chicago Home Inventory

And the other factor boosting my confidence in the current Chicago real estate market is the fact that home inventories remain exceptionally low. The inventory of detached single family homes has been bouncing around 5 months supply for a while now, which is basically a historic low since 2008. The inventory of condos and townhomes has bounced up recently but at a 4.4 month supply it’s essentially still considered a seller’s market.
Chicago months supply home inventory

Chicago Home Sale Market Times

Here is the other indicator that the Chicago real estate market is still strong despite declining sales. The amount of time it takes homes that do sell to sell remains pretty much at historic lows. Detached single family homes hit a new low of 78 days and although the market time for condos and townhomes has recently ticked up it remains pretty close to the lows at 72 days.  And condos and townhomes have been selling faster than detached single family homes for almost 2 years now.
Chicago home sale market times
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