Case-Shiller: Chicago Price Declines Accelerate

Time for a monthly check-in of the S&P/Case-Shiller Home Price Indices (HPI).

For an explanation of how the Case-Shiller data is calculated, check out their methodology pdf. Also remember that the data released on the last Tuesday of a given month is for the period two months prior (i.e. – October data is released in December).

Here are the basic Case-Shiller stats for the Chicago area* as of October:

October 2008
Month to Month: Down 1.6%
Year to Year: Down 10.8%
Change from Peak: Down 13.7%

The following chart shows the Chicago HPI scaled such that the September 2006 peak is 100% on the y-axis. Data on the x-axis is scaled to display the last time (pre-peak) the Chicago HPI was at or lower than it was in the latest data (August 2004).

Chicago home price declines acclelerated in October according to Case-Shiller, with the pattern heading into winter ‘08-’09 looking fairly similar to this time last year. Chicago’s largest month-to-month price drop was 2.3% in January, so October’s drop, while severe, was not the biggest.

Here’s a chart of Case-Shiller HPIs for all the markets that Redfin serves, so you can compare Chicago’s performance to other areas across the country:

And here’s one more chart, in which I have lined up the peak Case-Shiller HPI value for each of Redfin’s markets, so we can see how long each market has been declining, and how much it has dropped from the peak.

Of the eight markets Redfin serves, Chicago has dropped the second-least at 25 months from the peak.

With home price drops gaining steam again, it doesn’t look like we’re in for a bottom any time real soon in Chicago. If you are a seller that took your home off the market for the winter hoping for a rebound in spring, the current trends point toward disappointment. Of course, for buyers continued price drops means continually better deals to be found.

*[Case-Shiller defines Chicago as the entire Chicago-Naperville-Joliet, IL Metropolitan Division, which includes all of the following counties: Cook IL, DeKalb IL, Du Page IL, Grundy IL, Kane IL, Kendal IL, McHenry IL, and Will IL.]

Biggest Discounts December Update

Let’s have an update on where buyers are currently getting the biggest discount off the asking price. This data should help potential buyers to know which neighborhoods are softer in terms of sale price discounts off list price, better equipping you when making an offer and helping you know where to look for potential bargains.

In the charts below, we have taken all sales data from the last two and a half months in Cook County and sorted it by city. We calculated the overall difference between the sale price and the list price. Note that this reflects the final list price, after all price drops in the listing. Any zips with fewer than ten sales are excluded from the top and bottom ten rankings, but interested readers may download the full data summary in Excel format (xls).

Here are the top ten zip codes with the largest overall discount:

After taking the number one spot last month, Harvey shot even further out in front, with the 13 sales there averaging over 20% off. Interestingly, Harvey was the only holdover from last month’s top ten.

The overall discount for Cook County increased slightly from 5.1% last month to 5.7% this month, indicating a slight increase in the willingness of sellers to bargain with buyers.

Here are the ten zip codes with the smallest discounts:

Of the 1,936 sales we tracked in the 2.5-month period, 123 homes sold for more than 20% off the asking price, while 219 homes sold for more than asking.

As a whole, the trend is currently moving ever so slightly toward larger discounts for most neighborhoods. This could very well be a seasonal effect. As we continue to watch this data we will be able to get a better picture of what sale-to-list discounts tell us about the overall health of the local real estate market.

City/Town/Neighborhood December Price Reduction Update

Let’s take another look at which cities and towns have the most price reductions.

The following charts show the percent of MLS, FSBO or REO listings that were price-reduced at some point before leaving the market (either sold or removed unsold from the market) in the past 90 days. Cities/towns or neighborhoods in which the number of homes taken off the market was too small to provide believable estimates are excluded from ranking.

For those that are interested, I have uploaded the full data set in Excel format here. In order to keep from overwhelming you with charts, I am leaving out the top ten cities/towns/neighborhoods with the least reduced-price listings from the post, but you can still see that chart in the downloaded file.

First up are the top ten cities with the most price-reduced listings:

Of the 249 cities/towns we ranked in the Chicago area, 78 had price-reduced ratios of fifty percent or more. North Barrington, Warrenville, Winthrop Harbor, Lake Barrington, and Gilberts all made the top ten last month and this month, with a consistently high volume of price reductions.

Getting a little more granular, let’s look at the top ten Chicago area neighborhoods for price reductions:

Only 10 of the 103 neighborhoods we ranked in the Chicago area had a price-reduced ratio of fifty percent or more. Six neighborhoods—Garfield Ridge, Washington Park, Roscoe Village, Pilsen / Lower West Side, Bucktown, and West Side—carried over from last month’s top ten as well.

Unfortunately, there do not appear to be any particularly strong patterns in the data that suggest where to look for sellers that might be more willing to negotiate a lower price. However, there does seem to be some consistency from month to month in the neighborhoods with lots of price reductions, so I recommend that bargain-hunters download the full data set and sift through it for their preferred neighborhoods.

A Look at Chicago Supply and Demand

Let’s take a look at the big picture of supply (residential listings on the market at month-end) and demand (closed home sales). Having an idea of what is going on with supply and demand can be an excellent way to measure the general “strength” or “hotness” of a real estate market, and often will provide a hint of the future direction of home price changes.

Here’s a brief market summary, based on the lates data I have available:

October 2008
Active Listings: down 8.3% YOY
Closed Sales: down 24.5% YOY
Median Price: $225,000 – down 13.0% YOY

Our first chart displays the raw supply and demand data back through late 2006 (as far as I have data available):

Listings did not peak as high this year as they did in 2007, but it is also worth noting that the usual winter decline in listings has so far been less dramatic than in 2007. Sales levels were considerably lower throughout 2008 than they were in 2007, which is more evident in the following chart.

Now let’s take a look at the year-over-year (YOY) change in the previous chart. YOY is the best way to interpret the direction of the market, due to the highly cyclical nature of real estate.

Sales levels have been way down all year, and after a brief spike to near-2007 levels in September, continued to decline further in October.

The bottom line currently is that demand (as measured by closed home sales) in the Chicago area continues to sink, resulting in a continued downward pressure on prices. Unfortunately, since our data only goes back to late 2006, it is difficult to draw many useful conclusions from this particular data set, but it does seem evident that until sales pick up, home prices are likely to continue declining.

Case-Shiller: Summer Price Plateau is Over

While most of us were out enjoying the holiday break last week, the folks at S&P/Case-Shiller released the latest data for their home price indices, which provides the most accurate measure of single-family home price trends for twenty markets across the country. Since S&P’s coverage conveniently includes each of the eight markets that Redfin provides service in, let’s take a look at the home price data from the S&P/Case-Shiller Home Price Indices (HPI).

Before we get to the charts, let me give a brief explanation of what the Case-Shiller HPI is. To calculate the index, they look at repeat sales of single-family homes over an “arms-length” period of time. Home sales that include things like major remodels, property splits, and sales between family members are disregarded, and sale pairs are weighted based on the length of time between each sale. After all this, the current month’s data is used to calculate a three-month rolling average which is the reported HPI. Data is released on the last Tuesday of every month, for the period two months prior (i.e. – September data is released in November).

For a more detailed explanation of their full process, check out their methodology pdf.

Here are the basic Case-Shiller stats for the Chicago area* as of September:

September 2008
Month to Month: Down 1.1%
Year to Year: Down 10.1%
Change from Peak: Down 12.3%

The following chart shows the Chicago HPI scaled such that the September 2006 peak is 100% on the y-axis. Data on the x-axis is scaled to display the last time (pre-peak) the Chicago HPI was at or lower than it was in the latest data (November 2004).

Chicago peaked at around the same time as most other Case-Shiller-tracked cities, and has declined noticably less than average, with the latest data showing prices off twelve percent from the peak (compared to the 20-city index, which has dropped nearly 22% from the peak).

Home prices declined sharply here late last year through March this year, then seemed to reach something of a plateau for the spring and summer. However, price drops are beginning to accelerate again with the September data, marking the largest month-to-month drop since March.

Here’s a chart of Case-Shiller HPIs for all the markets that Redfin serves, so you can compare Chicago’s performance to other areas across the country:

And here’s one more chart, in which I have lined up the peak Case-Shiller HPI value for each of Redfin’s markets, so we can see how long each market has been declining, and how much it has dropped from the peak.

After exactly two years of home price declines, Chicago prices have held up better than all other Redfin-serviced cities except for Boston.

I would say that the bottom line for Chicago is that while home prices are in a definite downward trend, the declines have not been as extreme as other markets to date. That could change in the future, but so far Chicago home prices have been holding up relatively well under pressure.

*[Case-Shiller defines Chicago as the entire Chicago-Naperville-Joliet, IL Metropolitan Division, which includes all of the following counties: Cook IL, DeKalb IL, Du Page IL, Grundy IL, Kane IL, Kendal IL, McHenry IL, and Will IL.]