CHICAGOLAND RESIDENTIAL HOUSING UPDATE, INCLUDING LUXURY HOMES &
THE STRAW THAT BROKE THE PENSION CAMEL’S BACK
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August, 2019
TOP IN THE HOUSING CYCLE &
LOOMING INSOLVENCY
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Real estate and the residential market have always been local markets. Indeed, extremely local with vastly different micro areas. In reality, there is no housing market, but rather thousands of wide ranging local markets. In addition to the varying state, regional, metro, county, city and micro areas, activity by housing type and price segment can vary widely.
Beyond the geographic and other extremes already noted, pundits generally center on mortgage rates and downplay or ignore other important dynamics like non-mortgage costs, the cap on deductions, valuation trends,
demographics
, migration, international immigration, foreign buying, social trends, consumer confidence, changing home preferences and the surge in
renting
. Depending on location, climate change, environmental risk, natural disasters, taxes and fiscal health could be additional concerns.
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Reflecting limited supply at the lower end, affordability, a lack of confidence, increased renting, negative demographics, non-housing friendly social trends, a sizable decline in foreign purchases and a likely peak in the flattening cycle
,
the
NAR
reported
total existing home sales declined -2.2% in June from the prior year.
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Unlike the lethargic sales,
the national median sale price of $286,000 reached an all-time high, up 4.3% from the prior year.
Reflecting a 4.4 month supply,
national housing inventory in June was unchanged from the prior year.
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Far worse than the rest of the nation and fueled by a myriad of dynamics that go far beyond inventory and affordability,
the Illinois sales slump in June was the worst so far this year
. It was also
the seventh consecutive year-over-year decline and the worst June since 2013.
Because June’s contract activity and pending sales improved from May when compared to the prior year, July sales may be less disappointing.
- Based on the Illinois Realtor data existing, home sales for Illinois (16,579), Chicago Metro (12,002) and the City of Chicago (2,766) declined by -11.2%, -11.6% and -13.3% respectively from the prior year June.
- The median sale price for Illinois ($225,000), Chicago Metro ($263,000 and the City of Chicago ($320,000) increased by 0.2%, 0.2% and 1.6% respectively from the prior year. The anemic price gains were in stark contrast to the 6.7% regional gain chalked up by the Midwest.
- Total inventory for Illinois (58,736), Chicago Metro (39,409) and the City of Chicago (9,624) was down -4.1%, up 0.1% and down -0.1% respectively from the prior year.
While varying significantly by price segment, non-high end detached inventory declined from last year, but attached home inventory increased. Consistent with a peak in the national, local and luxury home cycle,
the rise in condo inventory is indicative of the cycle change.
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Gazing across the hundreds of suburbs in metropolitan area, a handful performed well in the first half while many more were weak, particularly on the North Shore. As you might guess, most were in the middle, but still suffering meaningful declines in sales and median prices.
While even worse for businesses,
property taxes have become unsustainable across the metro.
Burdened with one of the highest
property tax rates
in the neighboring area, Oak Park got clobbered as did many of the suburbs in the far South of Cook County.
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Combined Chicago Metro
Second Quarter Existing Home Sales
% Comparison To Prior Year
June, 2019
(000)
Source: NAR & IAR
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CHICAGO METRO LUXURY HOME MARKET
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Prior to the fourth quarter correction, combined luxury home sales were chalking up record high activity in 2018. Following the -10% fourth quarter correction, sales declined by -22% in the first quarter and -11% in the second quarter, far more than the drop in sales for all market segments.
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Confirming a peak in the luxury home cycle
,
the second quarter decline was the third consecutive quarterly decline.
The second quarter also witnessed a new trend of rising condo inventories.
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- According to ReMax Premier, combined Chicago Metro (seven county) luxuryhome sales in excess of $1 million totaled 813 units in the second quarter, a decline of -11.3% from the prior year quarter.
- Fueled by downtown condo sales in excess of $4 million, the median sale price for all luxury home sales was $1,338,000, up 2.9% from the prior year quarter.
- The combined luxury home listings totaled 2,987, a decline of 2.9% from the prior year. The average time on market increased to 163 days, up from 149 last year.
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While combined metro area second quarter luxury home sales declined by -11.3% in the second quarter, combined Chicago sales declined by -9.0%, including -13.5% for detached homes and -8.8% for condos.
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- Reflecting underlying demand, the median sale price for the 196 luxury condos sold in the second quarter increased 9%.
- The single family listings in Chicago declined by -1.9%, but the Chicago condo listings increased by 2.2%.
- Exceeding sales by more than three times, the luxury condo listings in Chicago totaled 663 at the end of the second quarter. Fueled by an abundance of new construction and hardly in short supply, more than 40 ultra-luxury condos in excess of $4 million are currently on the market.
While the wealthy have an abundance of world class choices, they are also facing a fiscal crisis, a cap on deductions, excessive property taxes, ballooning assessments, a higher transfer tax on luxury sales, a graduated state income tax, growing concerns over the next economic contraction, a big increase in luxury rentals, meaningful new construction and reduced foreign buying.
Chicago Metro
Second Quarter Luxury Home Sales
Seven County Sales Over $1 Million
Second Quarter June, 2019
Source: ReMax Premier
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Still waiting for the long overdue Comprehensive Annual Financial Report, but feeding on the budget passage and graduated income tax proposal,
Fitch
tenuously moved their negative outlook on Illinois to stable. While the near junk bond BBB rating remained unchanged, the huge unfunded liabilities were not mentioned.
Leveraging their incestuous relationship with elected officials and claiming victory for getting the 2018 law that curbed end-of-year pension spikes repealed, the CTU is now threatening to strike Chicago Public Schools before opening if they don’t get several billion more from the state’s already overburdened taxpayers.
While the governor is giving taxpayers an opportunity to vote on changing the flat income tax rate to a graduated rate,
taxpayers have not been given the same opportunity to vote on a constitutional amendment to reform pension costs
. Like the administration’s lack of voice on climate change, elected officials refrain from discussing the root cause of the fiscal crisis.
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The ever expanding Chicago loop, the developed lake front, prestigious academic institutions, job growth, mayoral attempts to improve ethics and Fitch’s stabilized outlook are all good things, but
there is no solution to the escalating fiscal crisis without benefit cuts and/or a municipal bankruptcy.
Illinois officials cannot tax their way to fiscal recovery.It simply isn’t possible.
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In a way, Illinois’s overburdened taxpayers are like children who were raised by incompetent and abusive parents. Now that the parents are old and in ill health, the children must decide if they want to stay and deplete their assets caring for them or bolt and start a new life.
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LOOMING INSOLVENCY: The Pension Straw That Broken The Pension Camel’s Back
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In addition to the peak in the housing cycle, a mountain of new construction is in the pipeline, fallout from the federal shakedown investigation, the fiscal crisis and a looming CTU strike,
Illinois has not prepared for an economic contraction or a meaningful equity market correction
, both normal events.
Concerned over trade fears, Chinese retaliation, a slowing global economy, the durability of corporate earnings and the extended business cycle, stocks suffered their worst week of the year. Playing the long game, saving face and undermining investor sentiment, the Chinese retaliation included letting the yuan fall and halting US agricultural imports.
The first Fed rate cut since 2008 was no doubt reflective of economic concerns resulting from the trade tension, but came with no assurance of further easing. With stratospheric federal debt and rates already low, the fed has much less flexibility today.
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Economic contraction or not,
the long overdue equity market correction has arrived.
With public pension funds unable to meet their benefit obligations after a decade long bull market in equities,
a sustained downturn could be the straw that breaks the camel’s back.
In an effort to preclude the inevitable, many public pension plans have actually increased their risk.
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One way or another, pension reform is on the horizon. Again, burdened with an already high collective tax rate, i.e., income, property, sales and a myriad of stealth taxes, officials cannot tax their way out of decades of corruption and mismanagement. The amount of debt and the shrinking tax base adds further fuel to the fire for restructuring.
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TAXPAYER STAKE, PARTIES IN INTEREST & STANDING TO PARTICIPATE
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While some states and municipalities have improved their financial condition, Illinois, Chicago, numerous other local entities and a host of others outside Illinois are queued up for some form of insolvency. As noted already, the equity market correction and or the next recession will be the straw that breaks the pension camel’s back of unfunded liability.
Because Chapter 9 - a portion of the US Bankruptcy Code devoted to the reorganization of municipalities & other local entities - has historically conferred participation status to a very limited category of taxpayers, participation and representation under municipal bankruptcy is an opaque, but perhaps evolving area.
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Taxpayers are allegedly represented by their elected officials. However,
representation
by elected officials is
not sufficient for bankruptcy purposes, particularly when the legitimacy of the elected
officials has been compromised
, a key dynamic. Indeed, economic burdens, the impact on property values and impaired services should not be allocated to those without a seat at the table, including tax payers.
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Because Chicago and Illinois have consistently ranked among the most inept and corrupt
, ELECTED OFFICIALS MUST BE PRECLUDED FROM REPRESENTING TAXPAYERS DURING THE NEGOTIATING PROCESS APPLICABLE TO MUNICIPAL RESTRUCTURING.
Well-chosen representation is essential to a better life for residents because the feeding hogs will suckle until they can suckle no more. See
U of I Chicago
for more on Illinois corruption.
Both are excellent, but Spiotto highlights the Illinois Supreme Court’s lonesome analysis of police powers to impair contractual obligations for a Higher Public Purpose and the inalienable sovereignty implicit in every government contract that does not have to be reserved with specific language, dynamics already affirmed by the US Supreme Court and virtually all state courts.
Given the importance of taxpayer representation during the restructuring process, DAI has changed their business model. Going forward, DAI will devote all resources to Illinois analytics, including the housing market, luxury homes, the local economy, the tech sector, documented migration and skilled immigration.
DAI does not practice law, but we will identify and highlight pioneering resources about taxpayer rights and representation during restructuring. Click
HERE
to subscribe.
Click
HERE
for more on Illinois corruption and why elected officials should not represent taxpayers during restructuring. Click
HERE
to see if your alderman has been indicted.
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This information has been taken from sources believed to be reliable, but accuracy and completeness cannot be guaranteed. All rights reserved. DAI publications may not be reproduced or distributed without the prior permission of the publisher. Assuming full credit is given, output can be quoted and/or referenced.
All Rights Reserved. © 2019 Data Analytics Illinois, Inc.
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Phil Chiricotti, Editor
Data Analytics Illinois, Inc.
PO Box 8
Western Springs, IL 60558
“Without quality analysis, GIS technology and the right data, a thorough location analysis is simply not possible.”
-PGC-
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