RE/MAX Sees Falling Unemployment as Good News for Home Prices in Metro Chicago Real Estate Market

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The median price of a home sold in the seven-county metropolitan Chicago real estate market continued to fall in 2010, but the trend may be ending, according to an analysis of data on home sales and unemployment by RE/MAX.

The median price of a home sold in the seven-county metropolitan Chicago real estate market continued to fall in 2010, but we may be nearing the end of that trend, according to an analysis of data on home sales and unemployment by RE/MAX.

“What we see is that unemployment in the metro area peaked during the period from mid-2009 to mid-2010, after rising sharply, and home prices may be following a somewhat similar pattern,” reports Jim Merrion, regional director of the RE/MAX Northern Illinois real estate network, which carried out the analysis.

“With unemployment now steady or falling in the Chicago area, we could begin to see home prices stabilize or move in a positive direction later this year,” he said.

Here is a comparison between the average unemployment rate for each of the last five years in the metro area and the change in median home price recorded that year:

        Unemployment rate        Median Price Change
2006        4.5%            +2.7%
2007        4.9%            +2.4%
2008        6.2%            -5.5%
2009        10%            -18.2%
2010        10.1%            -5.5%

“When the unemployment rate was under 5 percent in 2005 and 2006, the median home price was rising,” said Merrion. “Once the unemployment rate passed 5 percent, home prices began to fall, and they fell fastest in 2009 when the unemployment rate increased dramatically. Last year, with the unemployment rate rising only one-tenth percent, prices continued to fall, but at a considerably slower rate than in 2009.”

The most pressing question, according to Merrion, is how far unemployment will have to fall before home values begin to regain at least some of the ground they have lost since 2007. “You hear a lot of comments about how more jobs are the solution to the problems in the housing market, and based on our research, I certainly wouldn’t argue with that conclusion,” he said. “What we don’t know is whether getting unemployment down below 9 percent will be enough to stabilize prices, or will home values continue to be under pressure until the unemployment rate reaches an even lower level.”

The RE/MAX analysis also revealed that while median home prices and unemployment do move somewhat in unison, the same can’t be said for the number of homes changing hands annually. Total annual home sales have held in a narrow range, from 68,128 to 69,251, in the metro area during the last three years, even as unemployment rose from an average of 6.2 percent in 2008 to 10.1 percent in 2010.

“As that data suggests, there is certainly not a one-to-one relationship between trends in employment and in home sales,” said Merrion. “But it is interesting to see how changes in homes prices do correlate with shifting unemployment levels, though other factors doubtlessly play a role.”

RE/MAX has been the leader in the northern Illinois real estate market since 1989. The RE/MAX Northern Illinois network consists of 2,300 sales associates and 110 individually owned and operated RE/MAX offices that provide a full range of brokerage services throughout the northern one-third of Illinois. Its http://www.illinoisproperty.com and http://www.remax.com websites are leaders in consumer visits among real estate brokerage brands. The northern Illinois network is part of RE/MAX LLC, a global real estate organization with 90,000 sales associates in 83 nations.

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Laura Ortoleva
RE/MAX Northern Illinois
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