Crain’s came out with a story today about how the Chicago housing market won’t recover until 2013. This comes at a time when many statistics have been released and there has been a lot of debate regarding the interpretation of those statistics. Since I have recently been providing the bullish perspective on the housing market in Chicago I thought I should give equal air time to the other point of view.

The Crain’s story includes outlooks and analysis from John Burns Real Estate Consulting, Economy.com, First American Core Logic, Realty Trac, and Fiserv Inc., which calculates the Case Shiller home price index. In a nutshell:

• According to John Burns, existing Chicago home sales won’t start to rise until 2011
• According to Fiserv, Single Family Home prices in Chicago will continue to decline another 5.7% before heading back up
• Chicago homes are still expensive relative to incomes. From 1980 to 2000 the median home was 2.6 times the median income but currently that ratio is 3.3 (and that’s down from a peak of 4.2 in 2005)
• The home ownership rate of 69.3% is well above the more normal 65% level. If you believe that the incremental home ownership was driven by reckless lending to people who can’t afford to own a home then you can expect that percentage to drop – the hard way
• The number of foreclosures in Chicago was up 33% in 2009 and that will continue to drag down prices
• More foreclosures are expected because 21% of all Chicago mortgages are underwater
• Unemployment will drive even more foreclosures, with the rate peaking this year at 11.5% from the current 10.6%

Those do seem like pretty compelling arguments. On the other hand, a 5.7% drop isn’t that much, so if you are trying to find the exact bottom of the market you could easily miss it.

Earlier this week I received a lot of flack on Cribchatter for focusing exclusively on the Chicago Case Shiller index for Single Family Homes when Chicago’s housing stock is largely condos. Case Shiller provides a separate index for condominiums, though it only goes back to January 1995, while the Single Family home index goes back to January 1987. “G” pointed out that the condo data suggests that condominium prices have not bottomed in Chicago.

So I promised to take a more in-depth look at the data. Herewith is the condo index superimposed upon the single family home data, along with the trend line for single family homes.

I should first point out that these indices are normalized to 100 for January 2000, so they arbitrarily cross at that date. What you see from this graph is that condo prices have tracked pretty closely with single family prices until the bubble really took off, at which time single families went a bit higher. Subsequently, single family home prices dropped much more than condo prices until today when the single family index is below that for condos. Both indices hit a low point in April of 2009, after which they began to recover, recently they declined a bit more. Based upon this “G” suggested that the condo index has a really good chance of hitting a new bottom.

In order to gain perspective on that claim I tried a couple of different analyses. First, I looked at the historic ratio of the two indices – the single family home index divided by the condo index. Since in the long run the two classes of housing should appreciate at the same rate one would expect the ratio to fluctuate around a constant value.

The only “normal” period is from 1995 – 1998 (pre-bubble), when the ratio of the indices averaged 1.027. That’s a pretty short period in which to attempt to determine a normal ratio. After that you can see how the ratio peaked at 1.05 as single family home prices grew faster than condos and then dropped to almost .9 as they crashed faster than condos. However, even if we expect the ratio to climb back above 1 there are two ways for that to happen: either single family home prices can climb or condo prices can fall further. Given that the single family home price index is well below the trend line I would expect the former.

The other perspective I tried was to develop a trend line for condo prices. Since we don’t have much history I borrowed the single family trend line and adjusted it for the average ratio of the two indices from 1995 – 1998.

Based upon this trendline it looks like condo prices in Chicago have returned to trend. Of course, that doesn’t mean that condo prices can’t fall below trend but I can’t believe they can fall much further. While single family homes overshot on the downside, they were falling from a bit higher level than condo prices. I would also expect the two classes of housing to be subject to the same economic factors – i.e. they peaked around the same time and they both hit a low point in April. Perhaps they are climbing out of this quagmire together.

We should know a lot more in the next few months.

This is the time of month when various housing statistics come out. This morning the Case Shiller index just came out for November, 2009 and indicates that home prices in Chicago have resumed their decline – at least for the time being. The index dropped 1.1% from October.

Chicago home prices are currently at the same level they were in April 2003 and are down 23.3% from the peak in September 2006. The November numbers represent an 8.5% drop from the same time last year, which is one of the lowest year over year drops in recent time.

While this is a resumption of the home price declines that we have been seeing for the last 3 years, we are comfortably below the long term trend line so I still believe that we’ve seen the bottom and I’m expecting a return to the trend line.

After an incredibly strong November, Chicago area home sales were up 33% in December over 2008.

That represents the 6th month in a row of year over year home sales increases in the Chicago area. The fact that this is happening after 3 years of year over year declines is nothing short of miraculous. Of course, the tax credit may have something to do with this.

These numbers reflect closings, many of which went under contract in November. The contract activity for December and thus far in January is extremely strong so I expect more strong home sales numbers in January.

As always, you can find this and other key Chicago area housing statistics on our Web site.

We recently updated our Chicago condo (2 and 3 bedroom units) market data through December 2009. Consistent with all the other positive indicators for the Chicago real estate market, we are once again seeing lower inventory numbers and market times.

Months of condo inventory in December was less than half of what it was in 2008, at a 14 month supply.

This is much better than in the summer when inventory levels were actually higher than the previous year. While units on the market are down slightly, the big impact is from sales that are running at about twice last year’s level.

Meanwhile, the days on the market are also dramatically better at just under 250 days. That’s still a lot but it’s also the best level since the reporting was modified in October 2007.

As always, you can find neighborhood specific data at the following locations. A few of these neighborhoods really stick out – e.g. the Near South Side.

• Edgewater
• Hyde Park
• Lakeview
• Lincoln Park
• Lincoln Square
• Logan Square
• Loop
• Near North Side
• Near South Side
• Near West Side
• North Center
• Rogers Park
• South Shore
• Uptown
• West Town