In 2021, ongoing low housing inventory drove Illinois home prices higher while sales kicked off the year in high gear and moderated in the second half.

So, what’s ahead for housing in 2022?

In a new podcast, we talk to Dr. Daniel McMillen, head of the Stuart Handler Department of Real Estate at the University of Illinois at Chicago College of Business Administration, about his forecast for next year’s market. A few key takeaways: there aren’t signs of a big buildup in inventory in the near future; home prices are expected to rise, but not at the rate of 2021; and while home sales could increase moderately at different times in the year, significant increases aren’t expected. He also talks about foreclosure trends and what to take away from all the recent talk about rising inflation.

Listen the podcast to hear the full conversation with Dr. McMillen. You can also download a copy of the 2022 Illinois housing forecast and learn more about the general Illinois housing market at www.IllinoisRealtors.org/Marketstats.

Full Transcript:

Jeremy Goeckner: Hello, and welcome to the IR Weekly podcast, keeping you up to date with all of the latest news in the REALTOR® world. I’m Jeremy.

Kelli Jessup: And I’m Kelli.

Jeremy Goeckner: And on today’s episode, we’re talking with Dr. Daniel McMillen, head of the Stuart Handler Department of Real Estate at the University of Illinois at Chicago College of Business Administration.

Kelli Jessup: Dr. McMillen and his team provide Illinois REALTORS® with monthly, quarterly, and annual housing forecasts. He’s here today to give us an early look at the 2022 forecast and tell us what we can expect in the housing market next year. Dr. McMillen, welcome to the show.

Dr. Daniel McMillen: Thank you. I’m glad to be here.

Jeremy Goeckner: Absolutely. Well, this is going to be so amazing because you guys do such great work up there. Of course, you just got onto this job with us here. So, I mean, we’re very excited to be the first ones to talk to you about this. This is going to be great, man.

Dr. Daniel McMillen: We’re really pleased to have this being based at the University of Illinois Chicago now.

Jeremy Goeckner: Yeah, absolutely. Well, if anybody wants to watch that announcement video, we have that on Vimeo somewhere. So, good to deal with our REALTORS® Vimeo. But let’s get right into it here. So before we look ahead at the housing forecast, what have been some of the key trends that have defined the 2021 housing market?

Dr. Daniel McMillen: I think the first one is just the continued really high rates of growth of prices. It started early on during the pandemic and it continued throughout 2021. So overall, Illinois’ rates have probably been a little bit lower than the national average, but they’re still really high by historical standards. They also varied quite a bit, so over the course of the year, the range in the annual growth rates in a given month would be somewhere in the order to 5 percent, all the way up to 20 percent. So quite a bit of variation, but always quite high. It’s been pretty similar in both Chicago and the rest of the state in terms of those growth rates.

So the second trend though, is that sales have generally been relatively low. So prices are high, but the inventory hasn’t really kept up, and of course part of the reason why prices are high and they were uneven. So, they were generally up through the early part of the year, but at the end of the year, they started showing some declines. Then the final one that I want to mention is just the fact that one of the problems with inventory has been it’s been really difficult for builders to be adding to the housing stock right now. There’s still these major bottlenecks in supply and there’s still having trouble getting workers. That’s part of the reason why we haven’t seen the increase in sales, even though we’ve seen huge increases in prices.

Jeremy Goeckner: Yeah, absolutely. My brother-in-law is trying to build onto his basement and yeah, the lumber costs are still up there, they are still high.

Dr. Daniel McMillen: Well, and just simple things like remodeling. I mean, we want to remodel our bathroom, you know? Basically, get in line. Everyone else is trying to do the same things.

Kelli Jessup: So, the end of the year is quickly approaching, which I can’t believe that. So, looking at your 2022 forecast, what can we expect terms of home sales prices and just the market in general?

Dr. Daniel McMillen: Okay, so there’s always this caveat that it’s just really hard to make forecasts. I got to say it’s particularly hard right now because of all these things that are going on. So the first one going on is the supply bottlenecks, we don’t really know when they’re going to end. The troubles in the labor market, we don’t know when they’re going to end. There’s some major bills before congress right now, we don’t know what’s going to happen with them. So, you put it all together and what we’re expecting is that prices are going to continue to rise, expect the price increases to be a little bit lower. Now, this is something that there’s still some uncertainty about, but we do expect price increases to be a bit lower, but still high by historical standards. We expect them not to be quite as variable as last year. They varied a lot within the course of the year within Illinois. So overall, we’re expecting the price increases to be somewhere more around a fairly broad range, a 2 percent to 8 percent range over the course of the year. Best guess would be somewhere on the order of the 4 percent to 5 percent sort of range over the course of the year. We’re still not expecting to see sales really increase significantly. Don’t see a lot of sign of the inventory building up and that seems to be true both nationally and in Illinois.

Jeremy Goeckner: Absolutely. Well, hey, I mean, you just set up my question perfectly here. Look at the professionalism, people. So you just mentioned it though, but low inventory, it has been an issue. I know it’s came up a lot in the last year or even 2022 as well, but it’s been an issue for several, several years now. So, do you expect any improvement on that front next year?

Dr. Daniel McMillen: Well, I mean, all I can say is I hope so. But it, I just don’t see any real end right now to the trouble with builders finding workers and supplies. That there has been some decrease in the price, or at least slowing rate of increase, in the price of lumber. So, that should help in terms of new building. If the market does start to turn around, you might expect … One of the reasons why people aren’t buying a lot of houses right now is because you have to have a house to buy with yourself. We still don’t really know what’s going on with the pandemic. So you put all those together and it’s really hard to say. Our expectation is that sales are going to increase moderately over the course of the year, but we don’t see really big increases in the level of inventories. Again, that’s true, I think both in Illinois and nationally.

Kelli Jessup: So, you just mentioned the pandemic. What about potential foreclosures. Forbearance programs may have saved off some foreclosures during COVID, but could there eventually be an uptick in foreclosures in Illinois and what would that mean to the market overall?

Dr. Daniel McMillen: So, there was a pretty big uptick in foreclosures nationally when some of these first programs were rolled back. But the uptick, the increase that we saw in foreclosures, was relative to really historical lows. I mean, because you’re comparing it to a time where we had foreclosures being stemmed by some of these programs. By historical levels, foreclosures are still relatively low. Now, one of the biggest drivers of foreclosures is actually the declining home prices and you’re expecting to see increases in home crisis.

Then on top of it, we have this legislation going through congress that if, some of it passed is going to add money to households. You put it together and I think that the probability of a big increase in foreclosures is very low. So, I think there’ll be an increase in foreclosures just because these programs are going to end. But I think by historical standards, the foreclosures are still going to be on the low side.

Jeremy Goeckner: Absolutely. I believe we talked with Matt Rentschler here a couple weeks ago about the new round of assistance programs, rental assistance programs happening in December in Illinois. He said that there was this trend, everybody was expecting this doom and gloom foreclosure scenario that was going to happen once these programs ended, but that nationally, it held steady, the housing providers did step up in that regard.

Dr. Daniel McMillen: Yep, I think that’s been a case so far and I don’t really see that changing over the course of next year.

Jeremy Goeckner: Yeah, absolutely. Well, and that’s also good because of the national trends here. So, you’ve hit on these, a few things here, but are there other economic trends at the national level that could have an impact on the Illinois housing market? Or are there other things like that, that we should be watching on the national level that it will affect us here in Illinois?

Dr. Daniel McMillen: Well, I think one important one that I haven’t seen people talk too much about yet is the provisions in the bill that’s before congress right now for restoring the income tax deductions for state and local income taxes. That’s a big deal in Illinois because we have high property taxes. The limit went down to $10,000 and that’s all your state and local taxes, right? So, there’s plenty of people across the state of Illinois who are paying more than $10,000 just in property tax, let alone property tax and income tax. They’re talking about making that as high as $80,000, although it seems unlikely it’s going to be that high, the deduction. I think that would have a major impact on the housing market in places like Illinois and other high property tax places like the New York metropolitan area. So, that’s the first one. I think the other important thing to pay attention to of course is still what’s happening in the building industry. Because if we do get more building going on again, that’s going to have a big effect on things. The final one, I think is the issue of inflation. So, my view of inflation as an economist is I think of inflation … When I was in grad school, inflation was always defined as a steady increase in prices. I don’t think that we’re actually in an inflationary time by that definition right now. What we have is hopefully a short-term increase in prices that’s due to the supply bottlenecks and the fact that everybody is bidding up the prices of durable goods. Once we get back more toward a normal state of affairs and what kinds of goods people are buying and eliminate some of the supply problems, then I expect that the price trends will be more like they were in the past. So, I don’t think that inflation is going to be an ongoing problem, but I bet you it will be for at least another six months.

Jeremy Goeckner: Yeah, I hear there is a raging economist battle. It’s like Jets and Sharks out there about whether or not the inflation is permanent or not. I’ve heard something too the other day, I listened to another economist that was thinking it is, you don’t have people paying for, I think he said services, as much as they were anymore. It’s all durable goods.

Dr. Daniel McMillen: It’s movements for durable goods. That’s what people are doing right now and we just haven’t been able to keep up with the supply and that’s happening all throughout the world. I mean, the other thing to remember is that inflation ultimately is monetary issue. It has to do with too much money being supplied to the economy. That means that there’s always a lot of variation across countries in this, the fact that it’s happening everywhere in the world, basically at the same time means that this is not really that traditional monetary inflation problem. It’s the effect of a big increase in the demand for durable goods without a big increase in supply. That leads to an adjustment in prices but it doesn’t mean that they’re going to keep on going that way in the future.

Jeremy Goeckner: Absolutely. Well from your-

Dr. Daniel McMillen: We’ll see.

Jeremy Goeckner: … yeah, your lips to all of our ears, let’s make that so.

Dr. Daniel McMillen: But remember, what happens when you have inflation is that interest rates go up. When interest rates go up that has a big effect on the housing market.

Jeremy Goeckner: Yeah, absolutely.

Dr. Daniel McMillen: So, it’s definitely something to keep in mind for the housing market.

Kelli Jessup: Absolutely. Well, I think me and Jeremy got through our questions and the key points. I know our members really value the information you provide with these forecasts and the market stats and whatnot. So, thank you for joining us today and sharing your insights and highlights from the 2022 Illinois Housing Forecast.

Dr. Daniel McMillen: Well, thank you. Thank you very much.

Jeremy Goeckner: Yeah, this was absolutely fantastic, Dr. McMillen for the first of many. Let’s do this many more times. But we do want to remind our listeners that you can find a copy of the 2022 forecast along with monthly and quarterly forecasts, housing market reports, infographics and more on the Illinois REALTORS® Market Stats webpage. You can find that at staging.illinoisrealtors.org/marketstats.

Kelli Jessup: That’s it for this week’s IR podcast. Thank you all for listening and as always, give us a rating review on your podcast app of choice. If you want any more content, simply search for Illinois REALTORS® on your favorite social media app. We’ll see you next week.