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May 2017 Market Update

At the macro-level, the economy appears to be in a sort of high-altitude holding pattern. After dipping a bit mid-April, the Dow Jones is back at near-record highs, and recently flirted with the 21,000 mark. Unemployment is currently as low as it has been since before the onset of the Great Recession. The unemployment rate was 4.5% in March, two-tenths of a point below the February rate and the lowest it has been since May 2007.

On the flip side of this good news, only 98,000 net new jobs were created in March, well below expectations. GDP increased at just 0.7% on an annualized basis during the first quarter of 2017, and consumer spending increased at a disappointing 0.3% during the same period.

In the face of these conflicting indicators, the Federal Reserve’s Open Markets Committee (FOMC) held rates steady after wrapping up their two-day meeting May 2-3. For now, at least, the federal funds rate will remain at its current 0.75% to 1.0% level, although an increase at the next meeting June 13-14 is expected.

So, is the glass half-full or half-empty? And why do so many people still feel so gloomy about the economy this many years into the recovery? One of the explanations for this conundrum is becoming more and more obvious with every passing year – how you feel about the economy depends as never before on where you live.

Trulia, an online real estate resource, recently conducted a study of housing value improvement for the 100 largest metropolitan areas across the country since the end of the recession, measuring house values as of December 1, 2007 and again as of March 1, 2017. What they found was startling. Overall, just 34.2% of all homes nationally have seen values surpass pre-recession peaks, and the disparity in home values was widely correlated with where you live. Certain regions of the country have done much better than others, and even within metro areas, some zip codes have far out-performed others.

Not surprisingly, the metro areas with the most widespread recoveries include such Millennial favorites and technology hot spots as Denver, San Francisco, San Jose, Seattle, Portland and Austin where 80% of more of all homes have increased in value since December 1, 2007. At the other end of the spectrum, the worst performers seem to be those places that were especially high-flying before the recession hit. At the bottom of the Trulia study are such cities as Las Vegas, Phoenix, Tucson, Ft. Lauderdale, Orlando and the Inland Empire (Riverside-San Bernardino, CA) where fewer than 5% of all homes were worth more than they were before the recession. 

A Crain’s article, “Housing Recovery Lags Other Big Metro Areas” (May 3, 2017) picked up this story, and took a look at how the Chicago area stacked up. In short, the answer is – not very well. While a handful of zip codes mostly in and near the downtown area have done well, overall only 7.6% of the homes in greater Chicago are now worth more than they were before the recession. This places Chicago at the bottom on the list of the ten largest metro areas in housing value recovery and in the lowest quintile among the top 100. This poor housing value recovery is closely tied to the area’s below-average job growth and near-zero population growth.

So, the next time you hear someone say they don’t believe the economic recovery has gotten to them yet, don’t be too judgmental. If they live in most of metro Chicago and large parts of the Industrial Midwest – indeed, if they live in any of the nearly two out of three zip codes nationwide where home values have still not fully recovered from the last recession – then they are probably spot on.


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