The first three months of 2018 proved to be challenging for the Chicagoland real estate market. While the economy and the job market continued to perform well, the lack of supply of real estate available for sale has reached new lows. The real estate agents are blaming supply as the most important driver of the slowdown in the number of closed sales in the first three months of the year. So let’s look at some of the data to see if this theory holds true.
Homes available for sale
At the end of March 2018 there were 33,412 homes available for sale in the region of the market covered by the Midwest Real Estate Data service (MRED), which covers approximately 19 counties of the Northern Illinois and surrounding areas. This is approximately 16% less homes available for sale in comparison to the same period last year. At the end of March 2017 there were 39,997 homes available for sale. Additionally, the number of new homes hitting the market has dropped each of the first three months of the year in comparison to the 2017.
As a consequence of the lack of the new homes on the market, the “month’s supply” measure (indicating how many months would it take to sell out of the current inventory if no new homes are listed) at the end of the March 2018 was 3.1. This number has been keeping steady since December 2017. As a reminder, a good, balanced market, is when the “month’s supply” gauge is somewhere between 6-7 months. The current measure of 3.1 indicates a strong seller’s market.
Average Home Price
In support of the number indicated above is the fact that the average sales price continues to climb up. At the end of March 2018 the average sales price was $230,000. This, in comparison to $220,000 the year before, yields a modest 4.5% increase in an average property value. It is observed that the largest increases in the property values came from the lower priced homes, while the larger homes, particularly in Lake County, have seen stagnant, if not declining prices. This is mainly due to very high property taxes which are driving away some of the demand for these homes.
When talking about the Q1 of 2018 it is difficult not to touch the topic of interest rates. There was a lot of discussion about interest rates and how the FED has increased, and plans to continue to increase interest rates few more times this year. While rate hikes by FED are not directly related to mortgage rates, a correlation can be made between the two events. The mortgage rates have indeed increased and a conventional 30 year mortgage will now cost you somewhere around 4.25-4.5%, depending on the creditworthiness of the borrower. According to the Freddiemac.com, the average 30 year interest rate at the end of March 2018 was 4.44%, with .5% points, while at the end of March 2017 this rate was 4.2% with the same point percentage. Clearly, the interest rates are on the rise and this can be considered an impediment for the homebuyer. However, it is important to note that despite this increase in mortgage rates, the rates are still considered to be some of the lowest in history, and as such, a good deal for the borrower.
All this leads us to a measure of market activity (number of closed sales) for the Q1 of 2018. Due to all the factors mentioned above, the market activity has indeed subsided in the first three months of this year in comparison to the same period last year. The number of closed sales in the MRED region in the first three months of the year was 22,556, in comparison to 24,193 in the same period last year. This yields a 6.8% reduction in closed sales. While this number can be considered significant, the real estate agents are hopeful that the number of closed sales in 2018 will rebound and at least meet the number of closed sales in 2017. Realtors are hoping for more seller movement at the end of the school year, which should help the buyers who have been looking for a while to find their perfect home. And as the interest rates should not be changing significantly at least until June this year, the Q2 of 2018 should be a good time for both buyers and sellers.