Real Estate Update - 2016 Review & 2017 Forecast
We are often asked “how is the real estate market?” Now that we are into the New Year, we wanted to share some market highlights – both locally and nationally – and some insight about what’s in store for 2017.
Single Family Homes Sales
Housing demand, as measured by the number of homes sold, increased last year. During 2016, the number of single family home sales in Chicago’s North/Northwest Suburbs increased by 5%. Moreover, there has been a staggering 69% increase in the annual number of single family home sales since 2010.
Takeaway – Housing demand continues to improve and has drastically increased from a paltry 8,416 home sales in 2010 to over 14,000 home sales in 2016.
Sales Price to List Price Ratio
How much are buyers paying as a percentage of seller asking price? Single family home sellers in our market continue to receive (on average) 96% of their list price, and 93% of their original list price if they have had one or more price reductions. Compare this to five years ago, when we saw homes sell at 92% of list price, or 86% of original list price after one or more price reductions.
Takeaway – Because of the increase in demand and a decrease in good housing inventory, we have seen the gap between actual home sale price and seller’s asking price narrow.
According to the S&P/Case-Shiller index through 10/2015, home prices were up 7.1% nationally in 2016. Locally, home prices in the greater Chicago metropolitan area increased 3.95% in 2016. Home prices continue to rebound from the market low in March 2012, as we are now only down 19% from the peak pricing in September 2006. Interesting note: from market peak in September 2006 to market trough in March 2012, home values in our area declined 39%.
Takeaway – Home values in the greater Chicago area have been steadily improving, and last year posted the highest gain since 2013. Keep in mind, however, that residential real estate tends to be very local. Some of our communities saw smaller increases in value last year while some areas saw larger increases in value. Pricing is highly dependent on 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, a 6 month supply of housing inventory is considered a balanced market. We consider it to be a buyer’s market when there is more than a 6 month supply of inventory, and a seller’s market when there is less than a 6 month supply. Based on our current supply & demand, it would take 4.9 months to clear the current housing inventory in Chicago’s North/Northwest suburbs.
Takeaway – At 4.9 months of inventory, we are in a seller’s market. As the spring market approaches and additional housing inventory hits the market, I expect that we’ll shift closer to a balanced market.
Despite uncertainty that often inhibits the housing market during an election year, our real estate market was healthy in 2016. The number of home sales increased as did home values. As we move into 2017, if the supply remains relatively low, it will likely bode well for continued home appreciation.
Mortgage interest rates appear to the biggest wild card as we look at 2017. While rates have increased slightly since the end of October, they continue to remain at historic lows. We believe that rate increases throughout the year will be incremental, and any negative impact they have on the housing market will be offset by other positive factors.
We are optimistic about the housing market in 2017 and believe we’ll continue to see steady price increases throughout the year. According to Core Logic, economic growth should be the primary factor positively affecting the housing market in 2017, and we should see national home values increase by 4.5% to 5.0%
As we move forward into 2017, 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. Our most active home selling season will soon be upon us, with peak demand in the months of March, April, and May.