Wednesday, September 16, 2009

Chicago Home Prices: A Moody Crystal Ball

Want to look into the future of home prices in Chicago? From

"Moody's provided Forbes with a housing price forecast for the country's 40 largest metropolitan statistical areas (or metros)--geographic entities defined by the U.S. Office of Management and Budget for use in collecting statistics. The forecast predicts the percent change in home prices over one year, three years and five years, using data from the S&P/Case-Shiller Home Price Index. In the MSAs for which Case Schiller does not publish numbers, Moody's used a weighted average of metropolitan divisions within those areas.

Chicago, IL

Percentage Change:

1 Year, 2009: -16.31%

3 Year, 2009-2012: 1.49%

5 Year, 2009-2014: 14%"

Full Forbes story: click here.

So, on a metro area level, this calculation estimates that it will take five years for median home prices to get back to January 1, 2009 levels. Doesn't really sound exciting, but this is a macro indicator. Obviously, each property needs to be considered independently within this context. If you are in the market, your buyer's agent should be able to help you determine this. Check out this article with our Top Five Tips for selecting a buyers agent, if you aren't working with one already.

Price vs. Value
More importantly than price, however, is value. In other words: is any given purchase a good deal? or: Is the Chicago market still overheated?

Inside the Brackets believes the best way to understand housing market value is relative to median income (HP/MI ratio). This ratio tracks the comparison of housing prices in a given area to how much people typically earn there. Each area has a historical norm, and some are more stable than others. Especially when compared with other large metro areas, Chicago's historic ratio has been relatively consistent, with little volatility.

According to the New York Times, Chicago's historic norm for housing costs around 2.0 times median income. As of April 2009, this ratio sat at 2.5 according to this Interactive graph. The exact numbers are of relatively minor importance, the true meaning of the stat is the ratio.

What does this mean?
With an HP/MI at 2.5 in April, this meant housing prices would have to fall about 25% to get back to historic value levels (assuming negliegable income growth). If prices "only" fall the Moody's projected 16% this year, it means housing (in aggregate) still will not be as affordable as it usually is in Chicago.

So, even though Moody's projects a market price bottom in the next 12-24 months, value indicators like HP/MI may still indicate that prices are a little high historically. This only serves to reinforce the importance of evaluating the individual property and opportunity it presents within the market. In other words, even though prices are down, you can't just pick a house at random and get a great deal (a/k/a value).

What can you do?
During times like this, people who make careful purchases will come out ahead in the long-term. People who make careful purchases, as well as careful improvements to a property, will come out well ahead.
  1. Get a buyer's agent who knows your market to help you determine a home's real value.
  2. Invest wisely in properties where you can add value via appropriate improvements.
  3. Keep in mind that even though it's a buyers' market, it's still not like shooting fish in a barrel.

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Tuesday, September 8, 2009

On the River 2009

Last month, [1016] Architecture was one of many great sponsors of On the River 2009 in South Bend, Indiana. The event was a huge party thrown on a riverfront urban lot which was converted into a beach by 18 truck loads of sand. This year, over 3,000 people attended, and all proceeds benefitted the South Bend Center for the Homeless.
Check out some of Matt Cashore's photos of the festivities and consider attending this great event next year.

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Thursday, September 3, 2009

New [1016] Website

The newly redesigned [1016] Architecture website was launched today.

Check it out: [1016] Architecture

The new site was built around the following four goals:
  1. Make it easier for all visitors to understand the client types we serve
  2. Make it easier for potential clients to discover if we have services that fit their needs
  3. Stress the value of integrated real estate and architectural services
  4. Facilitate simple, free consultations and project inquiries
Let us know how we did. Comment below or send us an email.

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