Subaverage Appreciation is Costing Chicago Area Homeowners a Fortune – WP Original
By: Mark Glennon*
Home appreciation around Chicago is lagging behind national averages. How much is that costing homeowners? Recently released data suggests roughly $12.3 billion per year is being forfeited by Cook County homeowners alone. Here are the numbers:
Start with the total market value of all homes in Cook County (excluding apartments). The most recently available estimate of that total is $348 billion as of 2013. That’s according to a study recently released by the Civic Federation for Cook County only.
Now, how are homes appreciating in Cook County compared to national averages? S&P’s Case-Shiller Index is the most widely respected source on that. The chart on the right compares its most recent Chicago area home price index to its composite index for the top 20 metro areas in the country since 2000.
From October 2013 to October this year the 20-city average grew by 10.2% and Chicago’s grew by 3.1%. The difference of about 7.1% would have meant $24.6 billion more in appreciation for Cook County homeowners over those two years. They’ve lost out on over $12 billion per year, in other words, had homes done as well here as elsewhere.
That’s a rough estimate because the Case-Shiller Chicago Index averages collar county prices in with Cook County’s, but the point is clear that the numbers are huge. A similar story is playing out in most counties around Illinois. The negative wealth effect is certainly massive.
The flip side is that suppressed prices help keep the area inexpensive, a genuine competitive advantage.
But that would be little comfort to working class families who have actually suffered depreciation, which is the saddest part of the story. Most home appreciation has been in relatively prosperous areas in and around Chicago, but depreciation has hit those who can least afford it. See our recent story about the collapse of Chicago’s south suburbs for examples. For working class families who predominate in most of those suburbs, home equity is often the most significant asset they have, and it’s being destroyed.
*Mark Glennon is founder of WirePoints. Opinions expressed are his own.