Home prices peaked here in 2006. We’re still way behind that.

Thirteen years after their boom-years peak in September 2006, Chicago-area home values still aren’t fully recovered, while in several big cities and the nation in general home values long ago climbed past their old peak.

That’s according to data released by the S&P CoreLogic Case-Shiller Indices on Tuesday, which showed that home values in the Chicago metropolitan area in July were still more than 12 percent below where they were at the peak.

Nationwide, home values are nearly 13 percent above their old peak, and in boom towns like Boston and San Francisco, prices are more than 20 percent higher than each city’s old peak. (Cities peaked in various months in 2005-07, in Case-Shiller’s data.) In overheated Seattle, prices peaked all over again in July 2018, at more than 33 percent above their old peak, before cooling off in ensuing months.

The gap between Chicago’s and the nation’s recovery, about 25 percentage points, “is certainly not great news for Chicago homeowners,” said Craig Lazzara, managing director and global head of index investment strategy for S&P Dow Jones Indices.

Home values here are at about where they were in October 2004, according to the Index. If in nearly 15 years “your house hasn’t gone up in value,” Lazzara said, “that has an adverse effect on your consumer behavior,” such as spending on upgrades for the house, moving up to a higher-priced home, or borrowing against home equity to cover emergency expenses or, less well-advised, a wedding, vacation or other big-ticket expense.  

The index is a gross measure of the entire region’s home values, encompassing both hot spots like the West Loop, where prices have skyrocketed since the bust, and south Cook County suburbs, whose home values continued sinking long after the recovery was in full swing. And of course, slow-rising home values are great news for someone who’s looking to buy.

Yet taken as a broad measure of the region’s overall performance, the recovery gap looks like a readout of some of the biggest problems Chicago and Illinois have struggled with. Lazzara, who’s not a Chicagoan, spooled out a litany that is familiar to most Chicagoans: “You have a grossly underfunded pension system that, since the Illinois Constitution won’t allow benefits to be cut, can only be fixed by raising taxes. Illinois has been losing population. You have a crime problem or the perception of one. None of that makes for buoyant demand for houses.”

Two key factors separate Chicago from highfliers like San Francisco and Seattle, Lazzara said. One: “They’re not cold.” Two: “They’re tech centers.” Job growth cities are home price growth cities.

The protracted recovery of home values in Chicago “makes me wonder,” said Xilan Yu, an associate professor in the University of Illinois department of agriculture and consumer economics who studies household financial behavior.

“In the short term, most people hang in there because they know that in the long run the value will come back.” But 13 years, Yu said, “feels like in the long run it hasn’t come. It feels like people are stuck.”

The people who are most stuck are generally middle-class households who have few or no other better-performing assets that can offset the poor performance of their housing investment. “For them, home equity is a larger piece of household wealth than for somebody in the more expensive neighborhoods,” said Geoff Smith, executive director of the Institute for Housing Studies at DePaul University. “They may not have the equity they were anticipating for their retirement,” he said.

They may also have to remain in a home they’ve outgrown or aged out of, simply because they can’t afford to move. Crain’s reported earlier this week that Chicago has over 104,000 homeowners who have either no home equity or too slender an equity stake to cover a sale and move. It’s the largest number in America, and more than there are in New York and Los Angeles combined.

Only three major cities are further from their old peak home prices than Chicago: Las Vegas (17 percent below its peak), Phoenix (14.6 percent) and Miami (13 percent). All Sun Belt cities, they also have in common being among the nation’s frothiest of boom markets in the run-up to the housing bust, and they fell much harder than Chicago did, Lazzara said.
 
Between 2000 and the peak, home values in each of those cities rose by more than 125 percent, to points that were probably unsustainable. In that same stretch, Chicago’s home values rose by about 68 percent. Those cities’ inability to get back to the old heights isn’t a surprise, Lazzara said.

“In Chicago, you can fall back on the old secular story of population loss,” Lazzara said. Chicago has lost population four years in a row. “That’s bad for housing demand,” he said, and in turn, for housing prices.