Market conditions for 2 and 3 bedroom condos in the city of Chicago continue to show improvement through February. Once again inventory (months of supply) of these condos is lower on a year over year basis. This continues a trend that began in June, 2009, with February at about half of 2009′s level.

In addition, market times for condos that are on the market also continued their decline.

While inventories of unsold condos did show some decline in Chicago, the main driver of this improvement is an almost doubling of February sales volume from the previous year.

A bit of a caveat is in order here, as I recently discovered some issues with the underlying data. The calculations above differ from the standard industry practice of focusing on closed deals – for sales volume and for market times. In an effort to make the data more current and meaningful we use contracts written for sales volume and we report the market times for condos that are for sale instead of condos that sold. However, there is a problem with this approach in that as many as 15% of contracts written never materialize in a sale. When a contract falls through the property is reactivated and no longer counted as a sold condo in the data above. Consequently, as time progresses, the sales volume for February will decline and the inventory level will rise retroactively. Similarly, deals that fall through are returned to the inventory of unsold condos, having racked up additional market time without a sale. Consequently, the February market times will increase as these older properties are returned to the pool of unsold condos. In other words, both inventory levels and market times are initially understated but correct over the course of a couple of months as the data ages.

As always, you can find inventory levels and market times for some key Chicago neighborhoods and suburbs on our site:

• 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

• Addison
• Bensenville
• Elmhurst
• Hinsdale

The Case Shiller Home Price Index came out today for the Chicago area and it shows that for the 5th month in a row home prices have risen. We are now up 8% from the trough in April. As you can see in the graph below we undershot the trendline and now appear to be returning to more normal valuations.

Of course, prices are still down 21.6% from the peak and down 10.6% from this time last year. However, this certainly adds additional credibility to the notion that home prices in the Chicago area have bottomed.

We track this and other area home statistics on our Chicago Housing Market Statistics page.

It’s that time of the month when all sorts of real estate statistics come out. Today the Illinois Association Of Realtors reported that home sales for the Chicago area rose by more than 33% over last year. In order to get an idea of how huge this really is check out the red line on the graph below.

Up until very recently 2009 was the 3rd year in a row of persistent sales declines. Of course, this improvement is largely the result of the first time home buyer’s tax credit pulling demand forward but I was actually surprised this morning when I did a quick check of new home sale contracts in the city of Chicago for the first 20 days of November and discovered that they are actually up about 50% from last year at this time. I would have thought that all the demand shifting would have been done by the end of October as people thought the door was closing at the end of November.

One other anecdotal piece of evidence: even our most skeptical clients are signing contracts! Something must be going on.

As always you can keep track of these and other statistics on our Chicago area real estate market statistics page, which we keep updated.

When we updated our Chicago real estate market statistics recently we noticed that the last 24 months of history for 2 – 3 bedroom condos (the sweet spot of the housing market in Chicago) had changed dramatically from the last time we updated these statistics.

The red marker on the graph marks the spot where the new market time data begins. After calling the data provider and launching a 2 day investigation we discovered that they had just fixed an error in the way that they determine the days on the market. The result is that the market times are now shown to be much worse than we had thought but they have also been exhibiting dramatic improvements throughout the course of 2009.

You can see a similar improvement in the Chicago housing inventory, though these statistics were not impacted by the change.

Condo market times are down and inventory levels are down since the beginning of the year. The number of condos on the market is down at the same time that the number of condos sold is up.

There are probably several factors at play here. Certainly the tax credit is helping sales volume and I believe that sellers who are not prepared to price their properties properly have given up on selling – for the time being at least. Many of them just can’t afford to sell at current market levels. Some argue that this represents a shadow inventory of housing that will come back to haunt us another day. However, while I think that may prevent real estate values from rising, I don’t think it’s going to further depress Chicago housing prices because these home owners have already demonstrated an unwillingness to sell at current prices.

As always you can find our housing market statistics for several Chicago neighborhoods at the links below:

• 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

There are a few statistical measures that realtors use to monitor the condition of real estate markets. Two of these measures are months supply of home inventory (how many months it would take to sell off the current inventory at the current sales rate) and market time (how many days homes have been on the market). Seems simple enough, right? Not so fast. Believe it or not there is plenty of room in defining these measures to make them look either better or worse.

Let’s start with months supply of home inventory. Realtors have access to a statistical tool that conveniently spits out months supply of inventory for just about any slice of the Chicago real estate market you might want. However, for purposes of this “official” calculation the tool starts with the number of homes on the market at any time during the month and then reduces that number by the number that went under contract during the month and the number of listings that expired. I guess the rationale for doing it this way is that this represents how many homes remain to be sold. The only problem with this approach is that expired listings were part of the overhang that needed to be absorbed during the month. The fact that sellers gave up on them doesn’t make that housing supply go away. Therefore, I think it’s appropriate to include them in the calculation. The graph below compares the two approaches for measuring months supply of condo (2 – 3 bedrooms) inventory in Chicago. As you can see, the more comprehensive measure is always larger than the official numbers – especially in the fall.

BTW, you will notice that the June home inventory level for Chicago is actually lower than last  year for the first time in over a year.

Then there’s the market time. The real estate industry’s official measure of market time is based upon the number of days that a home was on the market before going under contract. Therefore, it only measures the market time for homes that actually sold! So, it excludes all the homes sitting on the market unsold. Well, that seems sort of biased, doesn’t it – not that the real estate industry would ever want to paint a pretty picture of the real estate market? So I believe that it is more accurate to calculate the average market time of all homes – sold and unsold. This more accurately reflects the pain of home sellers. The graph below compares the market times in Chicago using the different methods. As you can see, it’s a fairly dramatic difference and the more comprehensive method also reflects the seasonality that you would expect to see in a measure like this.

Effective July 1, 2009 we have restated all of our statistics (current and historic) using these new methodologies. As always, you can find Chicago neighborhood specific real estate market data here:

• 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