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.