If your Twitter feed is anything like mine, it seemed to be in two moods on Tuesday morning. Shortly after the release of the latest monthly data from the S&P/Case Shiller Index, the tweeting started—“Home Prices Continue to Rise: Housing is Now Economic ‘Bright Spot’” was the tone of the national news. But from local outlets such as Crain’s Chicago Business, the mood was grayer: “Home Prices Fall for Third Straight Month.”
That’s exactly why I said on WBEZ last Thursday that, when Chicagoans hear reports about the national real-estate scene, they should cover their ears. While the averages for the country and for some cities have been rising for several months now, Chicago has been going in the opposite direction.
As the Tribune’s Mary Ellen Podmolik noted, though Case-Shiller’s 20-city composite index showed home prices in November were up 5.5 percent from November 2011, and some individual cities saw double-digit jumps, Chicago notched just a 0.8 percent increase for the same period.
That isn’t much of an increase, but it’s better than a decrease. In fact, we should consider ourselves blessed with that figure, said Geoffrey Hewings, a University of Illinois professor of economics, geography, and urban and regional planning and the director of the school’s Regional Economics Applications Laboratory (REAL). “Given the fact that we have had these huge numbers of foreclosures on the market, the fact that we have any positive price change is good news,” he told me Tuesday by phone from Spain.
As most people know, the Chicago area’s foreclosure rate has been well above the national average. Because Illinois is a judicial state, where every foreclosure has to go through the courts, a big backlog developed, keeping foreclosed properties from moving onto the for-sale market as quickly as they had in nonjudicial states.
Before that backlog moves through the system, Chicago’s recovery will continue to lag, Hewings said. Basement-priced foreclosures create “a huge contamination on prices,” he explained. “I can’t think of a better word than that: contamination.”
Here’s the good news: Hewings thought the backlog was clearing. “In the last three months, the number of new foreclosed properties entering the market has been lower than the number of sales [of foreclosures], so the backlog is gradually being addressed,” he said.
That’s a big factor in the price increases that Hewings’s monthly reports for the Illinois Association of Realtors (IAR) have shown for the past few months. Hewings said that the proportion of sales below $200,000—where most foreclosures are—has been shrinking. That’s not only because of fewer foreclosure sales, he said, but because of an increase in conventional sales in higher price brackets.
As a result, IAR was able to report a 4.1 percent increase in Chicago-area home prices for December over November, and 3.4 percent in November over October. (Case-Shiller, which has not yet reported for December, showed Chicago with a 1.5 percent decrease in November from October. The IAR and Case-Shiller reports are based on different data. IAR tracks prices on all homes sold, while Case-Shiller compares present and past sale prices of the same house, according to Hewings. Both reports are accurate, though they do send mixed signals.)
Hewings estimated that it would still be another 18 months to two years before “we’re back to a level of foreclosure sales of, say, before 2007.” It may not be until then that Chicago’s recovery can try to catch up with what’s going on in other cities.
At the end of 2013, Hewings forecasted, home prices here will be down about 1 percent from where they were at the beginning of the year. That’s approximately flat. By that time, San Francisco, Minneapolis, and Phoenix may have been enjoying a long upward run of housing prices.
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