When It Comes to Home Prices, Chicago Is the Tortoise

In the latest S&P/Case-Shiller report tracking home price growth, the Chicago region was, once again, near the bottom among the list of major U.S. cities.

With single-family home values up 3.3% year over year in June, Chicago ranked #19 on the 20-city index, ahead of only Washington D.C. But we’re not concerned about the numbers – and here’s why.

Historical Data Indicates Chicago’s Housing Market is Relatively Stable

When it comes to home price changes in general, it’s important to look at historical data to understand trends in the long term. While it’s true that Chicago home price appreciation lags other major metros, past Case-Shiller data shows gradual, modest price appreciation is the norm for the region.

Through the 1990s, Chicago’s annual home price growth ranged between 2 and 5%. Prices began to rise more rapidly in the early 2000s and in 2005, appreciation peaked at 10% – well below the boom-era levels of several metros on the 20-city index. Growth tapered off through the end of the housing boom, and Chicago home prices eventually registered their biggest annual decline at 18% in 2009.

Chicago’s housing market looks relatively stable when compared with the major cities along the coasts and throughout the Sunbelt, where home prices are more susceptible to big swings. Take Las Vegas, for example. By September 2004, annual appreciation skyrocketed 53% and clocked double digits until the downturn, when home prices fell by as much as 33% year over year. Phoenix, Miami, and Tampa have also experienced significant booms and busts.

In major West Coast markets, home prices have been on a tear for the last few years. Low supply of inventory and high demand (largely driven by the tech sector) continues to push prices up in San Francisco and Seattle, which has had 30 consecutive months of double-digit appreciation.

As the data indicates, cities with higher highs tend to have lower lows, so Chicagoans shouldn’t feel inadequate with 3.3% growth given the region’s home price trends over the last few decades. In fact, there are a number of benefits to slow but steady price growth.

Housing in Chicago Is Affordable Relative to Other Major Cities

Rising prices have put homeownership out of reach for some buyers, especially in cities that are charting substantial gains in the Case-Shiller index. Affordability is reaching crisis levels in some markets…and not just for homeowners but for renters as well.

Median home values are sitting at over $1.3 million in San Francisco and more than $750,000 in Seattle, according to Zillow. Meanwhile, Chicago’s median home price is in the low $200,000s.

3.3% Growth Still Beats Inflation   

Economist and Case-Shiller creator Robert Shiller has noted the correlation between long-term home prices and inflation. In fact, he found prices rose an average of just 0.2% a year from 1890 to 1990, when corrected for inflation.

At 3.3% annual growth, average single-family home prices in Chicago are still rising above the rate of inflation. That should be welcome news for homeowners, who have the opportunity to build equity and yield a positive real return.

Above all else, buyers and sellers should always keep in mind that real estate is local, and trends across the region could have little relevance to your neighborhood or suburb. Big picture, the Case-Shiller data for Chicago shows a positive trend line – but in an area with such a diverse housing stock, pricing trends vary not only from neighborhood to neighborhood but also block to block and even building to building. And while some Chicago communities are still recovering, others have surpassed their pre-recession values. So when the next Case-Shiller findings are released, just remember to keep it all in perspective.

To get the scoop on what’s happening in your local real estate market, talk to an expert.