Market Snapshots

Susanne Ethridge Cannon

Associate Professor of Finance and Douglas and Cynthia Crocker Endowed Director, The Real Estate Center, DePaul University

A Correcting Market.

The Chicago area real estate market is undergoing a correction. The primary indicators of the state of the residential market are the number of sales, median sales price, time on the market, and discount from selling price. For the North Shore and the 25 Community Areas of Chicago that constitute the bulk of the Rubloff residential market, we are experiencing a slowing market on all three counts. As the graphs below indicate, the numbers of homes being sold is declining, prices are flat or trending downward, time on the market is lengthening, and properties are selling at higher discounts from list price.

Fig. 1 Semi-Annual Sales Volume North Shore and Chicago, 1990-2007

The next graphs illustrate the pricing band where 50% of all homes sell: between the first and third quartile of all sales prices. The Chicago market median price continues a modest increase, but declines at the upper end. The North Shore exhibits more volatility, especially in the past three years, and an obvious recent decline in prices.

Fig. 2 Chicago Market Median Sales Prices: 1990-2008 Fig. 3 North Shore Market Median Sales Price: 1990-2008

The Chicago market shows modest price increases. On the North Shore, home sellers are using discounts from list price to attract buyers.

Looking only at the first quarter of each of the past 18 years, we see a striking pattern when days on market and number of sales are placed on the same graph. Once again, it is the North Shore that exhibits the most contrast, with days on market sharply increasing and number of sales declining to a new low.

Fig. 4 Number of Q1 Sales and Median Days on the Market,
Chicago Market: 1990-2008 Fig. 5 Number of Q1 Sales and Median Days on the
North Shore Market: 1990-2008

Looking inside the market at the type of residence by number of bedrooms, over the past five years, the frequency distributions are equally intriguing. In the Chicago market, the story is best illustrated by the two diagrams below. The number of two bedroom units sold in 2007 is slightly below 2005 and 2006 and the most common sale price is in the $300,000-$400,000 range. For 3 bedroom units the number of units sold has declined precipitously, as illustrated by the highlighted curve for 2007, but it also remains in the same price group.

Fig. 6 Chicago 2 Bedroom Attached and Detached Sales Frequency by Price Group Fig. 7 Chicago 3 Bedroom Attached and Detached Sales Frequency by Price Group

By contrast, the number of listed units as shown below has a completely different distribution. There is a very large number of both 2 and 3 bedroom units in excess of $600,000, and a startling number of one bedroom units above $800,000.

The disparity between the property types that have actually been selling and how long they remain on the market before they sell suggests the pattern of price discounts may not yet have run its course. The median list price of 3 bedroom units on the market, for example, is over $475,000 and there are more than 3,000 currently listed with a median of 132 days on the market.

Fig. 8 Active Listings days on Market by Price Group and Number of Bedrooms

All of the indicators bear out the conclusion that this is a very good time to buy since high inventories have driven prices lower and interest rates remain at historically low levels. Sellers who price their homes to the market are realizing shorter market times. Inventories will be absorbed as this correction continues and the market will eventually achieve greater balance.