The Case For Further Home Price Drops

Crain’s came out with a story today about how the Chicago housing market won’t recover until 2013. This comes at a time when many statistics have been released and there has been a lot of debate regarding the interpretation of those statistics. Since I have recently been providing the bullish perspective on the housing market in Chicago I thought I should give equal air time to the other point of view.

The Crain’s story includes outlooks and analysis from John Burns Real Estate Consulting,, First American Core Logic, Realty Trac, and Fiserv Inc., which calculates the Case Shiller home price index. In a nutshell:

  • According to John Burns, existing Chicago home sales won’t start to rise until 2011
  • According to Fiserv, Single Family Home prices in Chicago will continue to decline another 5.7% before heading back up
  • Chicago homes are still expensive relative to incomes. From 1980 to 2000 the median home was 2.6 times the median income but currently that ratio is 3.3 (and that’s down from a peak of 4.2 in 2005)
  • The home ownership rate of 69.3% is well above the more normal 65% level. If you believe that the incremental home ownership was driven by reckless lending to people who can’t afford to own a home then you can expect that percentage to drop – the hard way
  • The number of foreclosures in Chicago was up 33% in 2009 and that will continue to drag down prices
  • More foreclosures are expected because 21% of all Chicago mortgages are underwater
  • Unemployment will drive even more foreclosures, with the rate peaking this year at 11.5% from the current 10.6%

Those do seem like pretty compelling arguments. On the other hand, a 5.7% drop isn’t that much, so if you are trying to find the exact bottom of the market you could easily miss it.

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