Home Prices to Rise 6% in 2016?
As a real estate broker, one of the most common questions I am asked is “how is the market?” Today I I thought I’d try to tackle this question. Below are a few market highlights – both locally and nationally – and some insight about what’s in store for 2016.
Housing demand, as measured by the number of single family homes sold, was strong in 2015. During 2015, Chicago’s North/Northwest Suburbs saw the number of single family homes sales increase by over 9%. Moreover, there has been a staggering 55% increase in annual home sales in five years.
Takeaway – Housing demand continues to improve and has drastically increased, from 7,664 home sales in 2011 to nearly 12,000 single family home sales in 2015.
Sales Price to List Price Ratio
How much are buyers paying as a percentage of seller list price? Over the past few years, single family home sellers in our market received on average 93% of their original list price, and 96% of their current list price (after one or more price reductions). Compare this to five years ago, when we saw homes close at 86% of original list price, and 92% of current list price.
Takeaway – Because of the increase in housing demand and sellers realigning their expectations with the market, we have seen the gap between actual home sale price and seller’s list price narrow.
Home values were up 6.8% nationally in 2015. Locally, we have seen home values improve but at a much slower pace. Home values in the greater Chicago metropolitan area remained more or less flat from 2014 to 2015, with an increase of just 1.35% through October 2015. While our market has rebounded nicely from the market low in March 2012, we are still down 22% from the peak in September 2006 (from our market peak in September 2006 to trough March 2012, home values declined 39%).
Takeaway – While home values in the broader North and Northwest suburban market have been steadily (albeit slowly) improving, many micro-markets have seen a more rapid increase. We saw values in some areas of our market increase between 3-8% in 2015. The rebound in your value is highly dependent on your specific location and the demand characteristics of your home.
Absorption rate is the amount of time (measured in months) that it would take for the current supply of homes for sale to be purchased. As a rule of thumb, 6 month’s supply of housing inventory is considered a balanced market. We consider it to be a buyer’s market when there is more than 6 month’s supply, and a seller’s market when there is less than 6 month’s supply. Based on our current supply & demand, it would take 5.5 months to clear the housing inventory in Chicago’s North/Northwest suburbs.
Takeaway –At 5.5 months of inventory, we are currently in a balanced market and possibly moving more towards a seller’s market.
So what does all this mean? Our market was robust in 2015 with strong demand. Couple this increase in demand with the balanced to limited supply of inventory, and I believe we should see a modest price increases on the horizon. According to CoreLogic, we could see an average rise in home value of 4-6% in 2016 with housing demand reaching its highest levels since 2007.
Our most active home selling season will soon be upon us, with peak demand in the months of March, April, and May. As we move forward into 2016, please let us know if you are thinking about a move. We’d be happy to schedule a time to discuss your needs, and assess the current value of your home.
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