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A threat to recovery? The major trend challenging Chicago’s housing market

by Peter Thomas Ricci

chicago-home-sales-2015-realtytrac

This year has been a very positive one for Chicagoland’s real estate market: there have been 80,766 home sales thus far, a 4.8 percent increase over 2015; median sales price is up 4.7 percent to $225,000; days on market is down 10.2 percent to 53; and negative equity inventory has fallen more than 17 percent.

Those have all been welcome developments for the local market, but they have all occurred amidst an overarching trend that could spell trouble for the market’s future – home prices continue to rise far faster than wages, and as a result, fewer and fewer residents can afford to buy homes.

That unfortunate reality came courtesy of ATTOM Data Solutions’ Q3 2016 Home Affordability Index. Below, we have created three charts from ATTOM’s findings to better explain the problem:

1. Year-over-year changes

As our first chart demonstrates, across Chicagoland’s five most populous counties, home prices have risen far faster than wages in the last year, with Cook County – where prices are up 17 times that of wages – being the most extreme case.

Also note that in all of Chicagoland’s counties, wages are either flat or negative.

County Q3 Median Sales Price YOY Change – Median Price YOY Change – Avg Weekly Wage
Cook $245,000 17% -0.2%
DuPage $270,000 14% 0.2%
Kendall $193,500 6% -0.7%
Lake $238,500 1% -3.3%
Will $196,900 6% -0.9%

2. Post-bubble changes

Beyond the last year, the price/wage trend is even more alarming. Our chart below compares how much prices have risen in Chicagoland’s counties since hitting their respective bottom to how wages have risen in that same time span – even in Will County, where the spread between prices and wages is the lowest, prices have still risen an incredible 14 times that of wages.

County Pct Change in Median Sales Price since Bottoming Pct Change in Annual Wage since Bottoming
Cook 88% 8%
DuPage 46% 4%
Kendall 61% 2%
Lake 59% 10%
Will 42% 3%

3. Historical changes

If there is any silver lining to Chicagoland’s current market, it’s that the price-wage divide has not yet outdone historical precedent. Our chart below shows that although the Cook and Lake County housing markets have set new records for the percent of wages needed to buy a home, the DuPage, Kendall and Will Counties are still operating below their historical norms.

Given how much faster price are rising to wages, though, that scenario may very well change by year’s end.

County Pct of Avg Wages to Buy Historic Pct of Wages to Buy
Cook 29.8% 29.8%
DuPage 33.4% 38.7%
Kendall 38.4% 40.3%
Lake 25% 25%
Will 32.6% 38.6%

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