Chicagoland economic outlook

In recent Chicagoland economic news, it appears home buyers and home sellers are entering the coming spring selling season with a feeling of optimism. Despite interest rates moving slightly upward and home prices continuing to rise, housing sentiment is increasing as well.

Fannie Mae publishes an index each month that ranks buyers’ sentiment. The most recent report showed buyers’ sentiment about the spring real estate sales season has risen to the highest level in six years, in part, due to a strong showing by millennial purchasers.

Millennials are entering the housing market and that's making Chicagoland economic news.

The millennials segment of the home buying population mentioned solid increases in employment confidence and income gains, which go hand-in-hand for first-time home purchasers – creating increased demand in the housing market. And while millennials are finally making the move out of mom and dad’s basement or spare bedroom faster than ever, the majority are still destined to rent, according to Fannie Mae’s research and statistics. As the supply of affordable inventory in the housing market continues to plague many millennials, so too does the higher price appreciation. Simply put, most millennials still find it challenging to afford to purchase their first home.

However, an ever-increasing number of millennials are entering the housing market and that’s making Chicagoland economic news. The same millennials that had put off marriage and having families are slowly turning their thoughts to home ownership. Recent research shows roughly 50% of millennial families have at least one child. That represents an increase of nearly 5% from last year and 7% two years ago. Real estate experts say children in the family is the most common reason young couples buy their first homes. With the U.S. home ownership rate at what has been near an all-time low, that’s good news for millennials and good for the housing economy. In addition, when it comes to living in urban areas, the number of millennials desiring to live the urban lifestyle is decreasing – by more than 6% in just two years. They are opting for the suburbs for the spacious outdoor amenities like playgrounds and parks.

The Fannie Mae buyers’ sentiment survey also revealed 85% of millennial buyers felt their home purchase was a “good financial investment.” And why wouldn't they? They’ve seen the prices of homes rise consistently in many of the popular neighborhoods throughout the country and they’re familiar with the average cost of a home – many have watched homes in their price range continue to rise faster than their income. Despite the higher prices, the fact that millennials see their home as a good investment should fare well for increased demand as they and other millennials begin raising bigger families and buy larger and newer houses as their families grow.

Experts say the Chicagoland economic news would include even greater demand for housing were it not for home values that continue to rise as a result of lower inventories nationwide – especially starter homes, popular with first-time home buyers. According to CoreLogic, nationwide home values increased 6.9% in 2016 compared to 2015. While home prices grew at a faster pace than incomes, the result was lower during the month of December 2016. Analysts cite a rise in mortgage interest rates immediately after the presidential election as possibly having an affect on asking prices by eager home sellers.

A CoreLogic spokesperson said, “Home prices continue to climb across the nation, and the spring home buying season is shaping up to be one of the strongest in recent memory.” He further added, “A potent mix of progressive economic recovery, demographics, tight housing stocks and continued low mortgage rates are expected to support this robust market outlook for the foreseeable future.”

According to the Fannie Mae sentiment report which measures consumer confidence regarding the housing market, the biggest gain in confidence was among those respondents who felt now is a good time to purchase a home. In addition, home sellers also felt it was a good time to sell. With more Americans feeling better about their employment and job opportunities, fewer are worried about losing their jobs. Other statistics in the survey showed more households are reporting slightly higher incomes – and the number of people surveyed expecting home prices to continue to rise did indeed increase. Lastly, among respondents asked about expectations that mortgage interest rates would drop, the survey percentages remained largely unchanged for the third consecutive month. This signals to researchers and real estate professionals alike that demand is high in the housing market, prospective purchasers are fairly bullish on home values and, so far, are not thwarted by what could possibly be continued slight increases in mortgage rates.

All in all, it appears that the biggest story in the Chicagoland economic news is that the housing market could see a relatively strong spring selling season. Prices will be as high as they’ve been for the past several months, but qualified purchasers will be fueled by steady incomes and job security for the most part – and, while interest rates are worth watching, most analysts feel they won’t be a deterrent for purchasers anxious to trade up.

You can find more articles pertaining to Chicagoland economic news in the "Economy" section of articles just below Chicagoland Real Estate Categories in the column to your right. Remember to also check us out by finding us on Facebook and Twitter.

As spring rapidly approaches, the Chicagoland economic update is for housing to cost more for many new prospective home buyers. Higher mortgage rates, rising home prices and slow-to-moderate job and income growth threaten to combine for a less than stellar spring home buying season.

The end of 2016 saw home affordability reach its lowest point since 2009, and the home ownership rate dropped to historical lows across the U.S. Some economists feel a cure for the home affordability problem isn’t in the cards for 2017.

 As for the Chicagoland economic update, some economists feel a cure for the home affordability problem isn't in the cards for 2017.

According to a new report issued by Black Knight Financial Services, American homeowners have to pay 22.2% of their median income to meet their mortgage payments on a median priced single family residence. The data is based on a survey of borrowers who have a 30-year fixed rate mortgage. By comparison, the housing bubble of 2005-2006 saw roughly 36% of median incomes to afford a home. Keep in mind that home prices and mortgage interest rates were even higher during that time.

The differences between the housing bubble of slightly more than a decade ago and today’s market are fuel for the most recent Chicagoland economic update. Back in 2005, most borrowers didn’t take out 30-year fixed rate mortgages, preferring to utilize alternate lending programs featuring low- or no-down payments and very low introductory interest rates. In addition, many borrowers took advantage of negative amortization loans allowing the homeowner to postpone payments and add them to the overall loan balance. Many of these “creative” financing options contributed to the housing crash and, as a result, some of these type loans are no longer legally available.

The current 22.2% of median income that the average borrower has to pay today to meet his mortgage payment represents a 10% increase during the fourth quarter of 2016 – the result of a quick rise in post-election mortgage interest rates. The above-mentioned Black Knight report bases their comparisons on 30-year fixed rate mortgages today, making it a more appropriate “apples to apples” comparison if some factor in the mortgage market is responsible for a change in affordability. In 2005-2006 when the home affordability equation was grossly out of line, the mortgage programs available at that time artificially increased the homeowner's buying power and drove up home prices. In actuality, without the creative lending programs and products the housing affordability would be far from sustainable.

In a nutshell, here’s where the Chicagoland economic update has created a cause for concern: With home prices having risen steadily during 2016, they were 7.2% higher across the nation compared from December 2015. The national index at the end of 2016, according to a report from CoreLogic, was 3.9% below the peak housing price pace in April 2006. This year, CoreLogic’s projections are that the national index will rise 4.7% – putting housing prices at a new high level before the end of the year. In addition, other indices that are tracked show that in some regions of the country, prices are already higher than their previous peaks – higher than the last housing boom.

Economists say the central cause of higher prices these days is not solely restricted to low mortgage interest rates, but also to tighter home inventory and record demand from home buyers. The spring buying season is expected by many to be extremely tight. Home builders have increased the number of units under construction, but not by much. In addition, there is expected to be a huge increase in demand on the part of first-time home buyers, especially millennials who have been on the sidelines for the past few years.

As always, time will soon tell. The lower than expected housing inventory levels continue to plague a full-blown housing recovery. That is seen as one of the major culprits in creating and inflating home prices of the homes that are on the market – creating a short supply and a high demand – the very definition of a seller’s market. Ironically, while interest rates do play a factor in the challenges of the spring selling season and beyond, mortgage rates are not expect to rise much higher than the 4.5% level during 2017, a very affordable interest rate – if home prices weren’t expected to rise higher than in 2016. Remember, while interest rates were at all-time market lows for much of the past 12-18 months, even a slight increase to the 4.5%  – or even the 5% threshold is a very good bargain compared to where interest rates have been for much of the last decade.

Nationally, most homes in most real estate markets remain more affordable than those in the housing bubble days. However, the Chicagoland economic truth is that the housing market is currently feeling more pressure in terms of affordability since the recovery began in recent years.

You can find more articles pertaining to the Chicagoland economic update and outlook in the "Economy" section of articles just below Chicagoland Real Estate Categories in the column to your right.

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Now that a new President sits in the oval office, the Chicagoland economic outlook is on the minds of people in the real estate industry as we enter 2017. Let’s look at three component parts of the economy and how they relate to each other – and what to expect in the real estate market for 2017.

The Stock Market

 The Chicagoland economic outlook is for gradual improvement in all areas of stocks, housing and oil.

Most of the “experts,” if there is such a thing, say they expect modest growth in the market with at least a chance of a correction occurring sometime during the year. Recently, more than a dozen Wall Street firms predicted the S&P 500 index of U.S. large-cap stocks will hit a record level of 2,363 – a growth rate of 5.5%. Analysts say President Donald Trump’s platform of lower corporate taxes, fewer business regulations and increased infrastructure spending has given investors reason to be more optimistic than in recent years.

The S&P 500 started 2016 at slightly over 2,000 and ended 2016 at 2,239 – a return of 9.84%. Actually, including dividends in the mix, the true return was approximately 12.25% – despite a dip in prices right before the end of 2016. The market’s positive attitude is largely the result of the new administration’s promises to be “pro-growth.”

Detractors point to the concern that stocks are overvalued and the bull market will be short-lived. In addition, a strong U.S. dollar could potentially be responsible for fewer jobs if American products are priced too high for global buyers. Nevertheless, just a few days into the Trump presidency, the feeling of optimism on Wall Street continues

Oil Prices
The Chicagoland economic outlook for oil prices in 2017 is for slightly more of the same experienced two years ago in 2015. It’s expected the average price of a barrel of oil will be $52 this year, as forecast by the U.S. Energy Information Administration. That’s nearly $10 more per barrel than the 2016 average price of $43. Crude oil averaged $52 a barrel in 2015.

At over $100 a barrel, oil prices reached an all-time high between 2011 and 2015. The advent of cheap fracking technology throughout the central U.S. was largely responsible for bringing the prices back down in 2015. The additional deposits enabled the U.S. to become an oil exporter – a first in more than nearly 40 years.

Gas Prices
During the first few weeks of 2017, Americans were paying an average of $2.34 per gallon of regular gas – the highest price since 2014 – according to the Automobile Association of America (AAA.) This time last year, the average pump price as $1.99 per gallon. While there is no direct connection between crude oil prices and gas prices, they certainly are related. AAA says that pump prices are affected roughly 2.4 cents per gallon for every $1 movement in the cost of a barrel of crude oil. The Chicagoland economic outlook for gas prices is for pump prices to average $2.10 per gallon in February and as high as $2.30 throughout the rest of 2017. The relatively cheap price of crude oil in 2016 enabled U.S. drivers to pay an average price of $2.14 per gallon of regular gas.

The Housing Market
So, what does all this mean for the housing economy in 2017? More of the same, according to the experts. And that’s a good thing – relatively speaking. CoreLogic, a real estate industry research firm, predicts home values will continue to rise throughout 2017 – at a rate of around 4.7%. Redfin, another online brokerage research firm, forecasts the growth in home prices slightly higher at 5.3%, citing homebuyer demand as being higher today than this time last year.

CoreLogic says home prices increased 7.1% between November 2015 and November 2016. Despite that impressive growth, the increase still ranks approximately 4% less than it was during its peak in 2006. The percentages are averages and area adjusted for inflation.

The Chicagoland economic outlook calls for continued tight inventory challenges. Fewer homes for sale in the marketplace leads to higher prices for those homes on the market – a classic example of supply and demand. When supply is scarce, demand is high and prices are, too. The tight inventory is expected to be especially impactful on first-time home buyers. In addition, as interest rates have increased slightly since the presidential election – and are expected to increase again, leveling off at between 4.2% and 4.7% in 2017 – the cost of mortgage financing will increase, too. However, relatively speaking, interest rates will still remain affordable – just not as affordable as they were 12-18 months ago.

In addition, contributing to the lack of housing inventory, recent research shows that U.S. homeowners with mortgages at lower fixed rates of 4.25% or less are likely to remain in their homes. These homeowners are less apt to sell their homes than their counterparts with higher interest rate mortgages. Although new construction is brisk, it appears to lack the firepower to produce a sufficient number of affordably-priced homes quickly enough to make an impact during 2017.

As usual, the combined effect of these components of the economy will be the determining factor in the Chicagoland economic outlook. If crude oil prices dropped, for example, creating lower gasoline prices, the resulting optimism could be encouraging for the housing industry. Builder confidence would rise, giving them greater opportunity to build more homes at volumes that would make them more affordable. Likewise, a leveling off of the stock market during 2017 would likely mean that U.S. Treasury bond yields would become a popular investment once again, giving the American consumer confidence interest rates would stabilize – making borrowing money more affordable – regardless of what home prices do or don't do.

The bottom line is this: The Chicagoland economic outlook is for gradual improvement in all areas mentioned. There seems to be an optimism in the new administration – although the jury is still out on what campaign promises will and won’t be delivered. As always, time will tell. In the meantime, there’s every reason to think that housing will be at least as good as it was in 2016 – despite the inventory challenges, higher prices and slightly more expensive credit.

You can find more articles pertaining to the Chicagoland economic outlook in the "Economy" section of articles just below Chicagoland Real Estate Categories in the column to your right. Remember to also check us out by finding us on Facebook and following us on Twitter.

The Chicagoland economic outlook will likely become a little bit clearer – or not – now that the presidential election has been decided. And for an election that was largely based on campaign rhetoric regarding the U.S. economy, the nation’s housing concerns have been largely ignored by both candidates. Let’s take a brief look at each party’s view on the housing market and what its economic policies will do to, or for, housing.

Hopefully the Chicagoland economic outlook will likely become a little bit clearer now that the election is finally over.

Keep in mind that not only is the presidential election finally over, but so, too, are the races for both houses of Congress. And while the new President will get the lion’s share of the newfound limelight, much of the economic discussion and legislation will come from the House and Senate. Much of what conversation there was about the housing market revolved around Donald Trump’s contention the financial markets are in dire need of deregulation versus Hillary Clinton’s view that affordable housing was the key component to a continued improvement in the single-family real estate market.

For all the hoopla and economic speculation surrounding the elections, the housing market’s issues are clear and challenging. The questions will be, “In what manner will this new administration deal with bringing much needed reform to mortgage industry giants Fannie Mae and Freddie Mac? While these two behemoths financially back the majority of the nation's mortgage market and earn a hefty profit in the process, they are still under the control of the federal government. As such, they are required to pay the U.S. Treasury Department all of their earnings. This, in turn, spawns additional questions for the new administration and the new Congress. How does the country welcome private capital investment back into the mortgage arena? In addition, how does the U.S. monitor, manage and control the rampant growth of non-bank lending institutions, which currently comprise over half of all new mortgage loans originated in today’s market? Furthermore, what about the borrowers who use these lenders, how do we insure their financial safety? Lastly, what efforts must be undertaken to create and expand more affordable housing opportunities in communities that are underserved and largely forgotten?

During the campaign, both presidential candidates boasted of their efforts to grow the nation's economy. However, each had a different road map showing how growth would occur. Most analysts say the Chicagoland economic outlook as it relates to housing is to provide better opportunities for increased home ownership. With the nation’s homeowner participation rate at or near the lowest level in decades, there’s really only one direction it can go. Increasing home ownership means making mortgage lending more easily accessible to more families – and more affordable – in the face of what many believe will be slightly higher interest rates next year.

Trump’s Republican “platform” – or, at least, one of the planks in it – was his feeling that the Dodd-Frank financial reform bill should be reformed or repealed. For all its supposed safeguards, analysts say the regulatory burden saddled on the mortgage industry by Dodd-Frank and the Consumer Financial Protection Bureau (CFPB) was too restrictive. Opponents of Dodd-Frank contend those regulations have made it more difficult for mortgage lenders to extend credit. The result is the creation of a more restrictive environment for even qualified borrowers to obtain necessary financing.

While addressing regulatory concerns in the financial industry will likely be an ongoing debate in 2017, neither Trump nor Clinton set forth opinions nor plans to reform the effects Fannie Mae and Freddie Mac have on the mortgage market. It was largely assumed Clinton would have the advantage of adding to – or at a minimum, continuing – the policies of the current Obama administration.

In addition, Clinton mentioned various proposals during her campaign to spur homeownership. Among them were efforts to provide assistance to those in underserved communities with down payments. For example, her plan would provide a federal government matching fund grant of up to $10,000 in savings designed for those households earning less than the median income. That money would be set aside specifically for the purpose of a down payment to purchase a home. Such a policy could encourage some of the nation’s prospective homeowners to save more money, yet it remains to be seen what sort of stimulus that program will have for housing. Some economists contend that what’s missing in the discussion about down payments is the obvious “elephant in the room” – borrowers still need to have an average to above-average credit score to qualify for financing. Many of the households for which the policies are intended will fall short of the required credit scores.

As far as Trump’s policies, his immigration reform stance may still have legs as it reaches Congress for additional discussion during 2017. If efforts are successful to either stem the numbers of immigrants coming to this country or to better enforce the immigration laws currently in place, housing could be affected.

In summary, the housing market is inherently driven by the successes or failures of the nation's economy. Factors such as employment gains, income growth, consumer confidence and the gross domestic product (GDP) not only contribute to – but also have a direct bearing on – the housing market. With the current state of the market being one of high demand, the Chicagoland economic outlook is for that trend to continue. However, the nation’s homebuilders are constructing new homes at a pace that falls short of the demand. In addition, the mortgage lending industry is in dire need of reform. While the housing crisis of less than a decade ago is clearly in the nation’s rear view mirror, a complete recovery is still yet to be realized.

With the new administration and new Congress, we can only hope for needed improvements in the housing sector for both the Chicagoland economic outlook as well as that of the entire U.S.

You can find more articles pertaining to the Chicagoland economic outlook in the "Economy" section of articles just below Chicagoland Real Estate Categories in the column to your right.

Remember to also check us out by finding us on Facebook and following us on Twitter.