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The Talking Points
After a sharp drop in September, Illinois home sales rebounded in October. Statewide home sales declined by only 0.2 percent compared to a year ago and marked the lowest annual decline so far in 2018. Consumers are still motivated to buy a home, but low inventory, rising mortgage interest rates and higher prices are chronic frustrations. Now, as we head into the end of the year and what is typically a slower period for the market, a strong U.S. economy and robust job market are providing positive signs.
Note a number of market dynamics:
⚫ Sales rebound and stabilize slightly in October. After a steep drop the month before, home sales declined in October, but at a much lower, more stable pace. Statewide sales were down 0.2 percent, Chicago Metro Area down 1.7 percent and the city of Chicago declined by 2.5 percent.
⚫ Median prices racked up another higher month. Year-over-year home prices rose again, averaging a 2.7 percent gain statewide and a 4.8 percent increase in the city of Chicago. Higher prices raise the question of affordability and the state’s housing affordability index fell 15.9 percent meaning homes were less affordable in October compared to one year ago.
⚫ Two more factors: inventory and interest rates. Year-over-year statewide housing inventory declined 2.6 percent in October and was also slightly lower than the month before. At the same time, mortgage interest rates have continued to edge higher this year and are hovering around 4.94 percent.
⚫ REAL Forecast: Median prices are expected to experience moderate annual growth in November,
December and January, according to the latest U of I REAL forecast. During the same period of
time, the forecast calls for sales to increase annually in the average range of 4.0 percent to 5.4
⚫ NAR’s Chief Economist Lawrence Yun: Rising mortgage debt not a cause for concern. In his
latest column for Forbes, Yun said that although rising home prices mean higher mortgage debt for
consumers, the overall outlook is still positive. Home values have risen, mortgage delinquencies are
down and more people’s net worth have grown. “The total household debt – mortgage and other
borrowings - is also of less concern. Everything that is owned minus everything that is owed of all
people combined in the U.S. nearly doubled from $59 trillion in 2009 to $107 trillion as of the
second quarter of this year,” he said.
⚫ NAHB: Housing affordability issues slow single-family construction. Total housing starts rose
1.5 percent in October, but the single-family construction that would help alleviate ongoing inventory
shortages declined 1.8 percent, according to the National Association of Home Builders (NAHB).
“Single-family starts were strong at the beginning of the year, but weakened this summer and have
remained soft,” said NAHB Chief Economist Robert Dietz. “Despite this softness, 2018 construction
volume is set to be the best since the downturn. A growing economy and positive demographic
tailwinds are supporting housing demand as interest rates rise. However, policymakers should take
note of the November decline in builder confidence as a sign that housing affordability conditions
will weigh on the housing market going forward.”
⚫ Fannie Mae: Despite strong labor market, housing still facing challenges. While the U.S.
economy is growing with a strong labor market and higher consumer and government spending, the
housing market is still facing challenges, according to Fannie Mae Chief Economist Doug Duncan.
“The current labor market hot streak hasn’t been enough to boost the housing sector. Both new and
trade-up home buyers remain discouraged by rising mortgage rates, elevated home prices, and a
shortage of available inventory, particularly in the lower tier of the market,” he said in Fannie Mae’s November 2018 Economic and Housing Outlook.