Ep. 48: The housing market goes bust

Ep. 48: The housing market goes bust

After a few years of homes flying off the market, signs are indicating the market is starting to cool. Is a housing bubble going to burst? Bryce Hill joins the Policy Shop to discuss what’s going on in Illinois’ housing world, how prices fair today and what to expect next.

This week’s Policy Shop is by Director of Fiscal and Economic Research Bryce Hill.

The housing market was booming for a long time across the country, following government spending to try to stimulate the economic recovery.

Now it’s stalling out. Illinois experienced over 14,000 foreclosures in the first six months of 2022, the highest rate in the nation.

What’s ahead. Prospective Illinois homeowners need to pay nearly $8,000 more upfront and $5,000 more annually for the same house versus in 2019. Record-high inflation, rising interest and mortgage rates and the second-highest in the nation property taxes make living expenses more difficult to manage for Illinoisans. That is not good news, because foreclosures in Illinois have nearly tripled from last year and are up 12% from two years ago. Many Illinoisans just can’t keep up.

Dangerous policies. Making the situation worse is Amendment 1, which is on the ballot Nov. 8. It will continue to make housing even more unaffordable and is anticipated to cost each homeowner an extra $2,150 in property taxes during the next four years.

How bad is it? Let’s break it down by factor. 

Pricing: The median Illinois home sale in 2019 was $208,965. Today it would go for an estimated $247,926: a difference of $38,961. While perhaps a positive sign for sellers, it also means they are priced out of buying something comparable. To buy the median home with a 20% down payment would require an additional $7,792 in 2022 versus 2019, not including additional closing costs.

Interest rates: The average 30-year fixed rate has increased. What was 3.94% in 2019 is now 5.41% in August 2022. Changes in value and interest rates mean that, for the exact same home, Illinoisans would have to pay $323 more in mortgage payments per month, which is $3,876 more a year.

Property taxes: Annual property taxes have also grown by an estimated $1,048 during this time, or an additional $87 per month. Property taxes are the equivalent of five additional mortgage payments for someone buying the home today (They were the equivalent of nearly six additional mortgage payments in 2019, but home values and interest rates grew more than property taxes).

Total housing costs are up $4,924 annually for the same exact home from 2019-2022. That figure doesn’t account for the changes in repair and maintenance costs because of inflation or changes in home owners association fees.

Any good news? There are positive signs in the job sector, with Illinois adding 18,800 jobs from mid-May through mid-June, marking the 13th consecutive month of job gains for the state. But the recovery is slower than it ought to be to get out of the pandemic slump. Only 86% of 2020 job losses have been recouped statewide since the recovery began, less than any neighboring state except Wisconsin. With so many jobs still missing and wages not keeping pace with inflation, homeownership is becoming less attainable for the average Illinois worker.

The first step to ensure Illinoisans don’t endure a particularly painful future economic downturn will be for voters to take a hard look at Amendment 1 on the Nov. 8 ballot. Amendment 1 would change the Illinois Constitution to grant public unions in Illinois more extreme powers than they have in any other state, including the ability to bargain over virtually limitless subjects, the ability to override state law through their contracts and a guarantee taxpayers and lawmakers would have an extremely difficult time reversing course. The proposal would guarantee an average $2,100 property tax increase as each Illinois homeowner is forced to pay for an expanded range of public union demands.

Want more? Get stories like this delivered straight to your inbox.

Thank you, we'll keep you informed!