Transcript Housing and the Economy: Impacts and Forecasts 2014 Update

Housing and the Economy:
Impacts and Forecasts
2014 Update
Geoffrey J.D. Hewings, Ph.D.
Director
Regional Economics Applications Laboratory (REAL)
University of Illinois
Institute of Government and Public Affairs
217.333.4740 217.244.9339 (fax)
[email protected]
www.real.illinois.edu
The assistance of Xian Fang, Esteban Lopez and Minshu Du is
gratefully acknowledged
Outline
o Update on the economy
o Housing market and forecasts
o Launch of a companion price index
for Illinois and metro areas
o In progress: Impact of foreclosures
2013 Highlights
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
Last half of 2012 revealed positive changes in prices
Significant increase in sales volume and sustained
price recovery in 2013
Resolution of foreclosure issues saw significant
increase in foreclosed properties
Consumer optimism dampened by “fiscal cliff” and
Government shutdown in Washington and the failure
of Illinois state government to address deficit
Combination of enhanced inventory, historically low
interest rates and accelerating costs of renting fueled
the housing market in 2013
Update on the economy
Number of Jobs Gained/Lost for
Illinois 2000-2013 (000s)
150
100
50
0
-50
-100
-150
-200
-250
Four years of
solid job
creation
-300
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
3.00%
Illinois, Rest of Midwest and US Annual
Employment Growth Rates (%)
2.00%
1.00%
0.00%
Illinois
-1.00%
RMW
US
-2.00%
-3.00%
-4.00%
-5.00%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
o 2010 and 2012, Illinois exceeded or matched US
growth rates
o Only happened twice since 1980
o But……
The hill to climb….
•
State is 220,000 jobs below prior peak (November
2000) “
But…need to add considerations of:
•
•
•
population growth since 2000
decrease in labor force participation rates
Large number in part-time who would like full-time
employment THEN…
State of Illinois Economies
o State probably needs to add close to:
707,000 jobs to achieve equivalent level to
November 2000
RECOVERY:
How long will it take?
o
o
o
Before this recession, longest recovery was 8
years (now > 13 years – since 2000)
Current employment in Illinois matches that late
1990s
Illinois still has 5 of 10 sectors with employment
levels below those of 1990: Manufacturing,
Information, Construction, Trade, Transportation
& Utilities, and Financial activities
Illinois Metro Areas
o How well are they doing compared to
Chicago and the state?
o What are the forecasts?
o Developed monthly employment
analysis and 12 month ahead
employment forecasts
o Also developed an Index of Leading
Indicators for each MSA
The Metro Indices Compared with Chicago’s
Performance
Comparing MSAs Indices with Chicago Indices
50.00
40.00
30.00
20.00
10.00
0.00
-10.00
-20.00
-30.00
Bloomington
Champaign
Davenport
Decatur
Peoria
Rockford
Springfield
Kankakee
Value above line indicate growth > Chicago
Metro Area Economic Performance
last 12 months
Housing Market
How Good were our Forecasts?
Illinois Housing Market: Prices
Illinois Housing Market: Sales
Chicago Housing Market: Prices
Chicago Housing Market: Sales
Illinois Housing Market: Supply
Illinois Housing Market: Price
Stratification
Illinois Housing Market: Price
Forecast 2014
Annual Sales Change by Month
(month this year compared to last year)
Downward Trend of Concern?
But signs of
upward trend
last 2 months..
Final Concerns
o
o
o
o
Signals in the economy and in the housing
market continue to be “noisy”
Signs that Congress is finally accepting its
responsibility to govern
State has made some “progress” on facing
fiscal issues but….
Firms would like to locate/expand in the
state but have little faith in the state’s fiscal
management
Launch of the REAL Index
o
o
o
o
REAL, along with NAR publishes a median
price index
Problem: price changes may not fully reflect
differences in the characteristics of houses
sold one month versus next month
Case-Schiller index provides “perfect
match” by comparing same house – but only
available for top 20 markets
But:
o Repeat sales may not fully represent mix
of sales
o Not suitable for small Metro areas
Launch of the REAL Index (2)
Median Home Sales Prices
o The median is the half point between the
largest and smallest value of a sample of
houses.
o It is misleading when:
o Sales prices do not appreciate equally
throughout the distribution (i.e. more
appreciation in the lower-priced homes or
in the higher-priced homes).
o Changes in consumption patterns for
characteristics (i.e. preferences relative
change for number of bathrooms,
bedroom etc.)
Launch of the REAL Index (3)
Launch of the REAL Index (4)
Launch of the REAL Index (5)
Launch of the REAL Index (6)
Launch of the REAL Index
o Starting in January, issue two indices for Chicago
and Illinois
o One based on median prices (as before)
o One based on housing characteristics
o For the quarterly Metro area forecasts, provide
the same two price indices
o Attempt to expand the number of characteristics
associated with houses sold
o Attempt to highlight whether price
appreciation is coming from different
characteristics or truly represents price
appreciation based on similar characteristics
o Look for your feedback next year
Impact of Foreclosures
Impact of Foreclosures
o
o
o
Examined the impact of foreclosures on
property prices in Chicago
Foreclosures have negative impacts not just
for the homeowner, but also on neighboring
property values.
REAL conducted a study to investigate the
impact of foreclosures over time on nearby
property values
Spatial Units
Neighbourhood
buffers.
Nearby neighbourhood:
0-0.1 miles and
Distant neighbourhood:
0.1-0.2 miles and 0.2-0.3 miles
Foreclosure Timeline
Division of foreclosure timeline.
“A” indicates “Auction”; 1 unit indicates one quarter;
“+” indicates after auction and “-” indicates before.
Foreclosure Impacts: Results
Foreclosure Impacts: Results
o On average, no impacts before the auction;
-2% to -1% during the two years after the
auction
o One more foreclosed property can reduce
nearby property values: (calculated at
median housing price of $250K)
o In the first year: $2,100
o In the second year: $3,000
Impacts by Vacancy Rate Quartile
Foreclosure Impacts
o At current rates, expect to return to prerecession foreclosure rates in late 2014 or
2015
Final Remarks
o A recent CRAINS survey revealed more
renters in Chicago more favorable to buying
– inching up homeownership rates to 68.1%
compared to 66.9% in 2012
o Increasing construction of multifamily units
(and new construction generally) will put
pressure on rental markets
o Concerns focus on impacts on (1) housing
affordability and (2) impact of increasing
inequality on housing demand
Final Remarks (2)
o According to NAR, year-over-year
affordability index decreased 16.1%
nationwide in third quarter and 14.1% in
Midwest
o US now second to UK in income inequality
(before taxes) and first after taxes –
empirical evidence accumulating that this
has negative impact on long-term growth
but debate is contentious
Monthly index of
leading indicators
for Chicago
L
Monthly Employment analysis
for state and Metro areas
Illinois Economic Review
(monthly) with employment
forecasts for next 12 months
For More Information
www.real.illinois.edu
www.illinoisrelator.org/marketstats