US Market Overview – Illinois
The State of Illinois
The mid-west state of Illinois was granted statehood in the year 1818 under the presidency of James Monroe. Illinois has since grown to one of the most populous states in the country boasting a total population of 12.8 million, which puts it at 6th in the country, according to 2017 US Census estimates. In the time since the US Census was conducted in 2010 the population has actually decreased. The rate at which this decrease has occurred remained steady, starting in the year 2015 at a rate of roughly 0.17%. While seemingly a minuscule amount this accounts for a total migration of over 30,000 individuals within the last two years. Illinois was one of 3 states, including West Virginia and Vermont, to have a negative population growth over the last year (US Census Data, 2017). This population decrease can be speculatively attributed to a few different factors.
Population Decline and Economic Crisis
The first of these is the economic recession starting in 2007. This recession, which many blame on the housing bubble created by sub-prime lenders causing a rapid appreciation of home values, predatory lending institutions causing rising default rates on single family residences, and the the eventual depreciation of these home values exacerbated by the decline in the lending giants who invested in securities of mortgage guarantees, led to what experts have called the greatest period of economic turmoil since the Great Depression. What does this have to do with Illinois’ population instability?
The increasing unemployment rate across the country created a large workforce in rural areas that were suddenly out of the job. Large cities, such as Chicago, offered more job opportunities than local rural counties were able to provide.
The geographic location of the state also afforded a much easier move as well. Chicago sits in a tristate area with bordering states Wisconsin and Indiana. Rather than drive the hour from the Wisconsin or Indiana border, residents took to Illinois as their new home. In Wisconsin this can be seen with census data showing a stagnated growth rate (although not decreasing). As a counter point, some have attributed this stagnated growth to “brain drain” from recent college graduates moving back to their home state in addition to college dropouts who could no longer afford to attend the popular schools in Wisconsin due to the recession.
This can also be seen in Indiana. A study conducted in 2009 by the Indiana University School of Business shows a large influx of residents to only a few counties located centrally in the state, those housing and and surrounding the states largest metropolitan area, Indianapolis, and the biggest decreases are shown in the most northwest counties in the state(IU Kelley School of Business, 2009). These counties are those that border Illinois and more importantly the closest to the city of Chicago. This increased growth during the time of recession inflated the population and growth rate of the state of Illinois. From the period of 2007-2013, Illinois gained roughly 200,000 residents during one of the worst economic recession in US history. This eclipses a prevous 5 year mark from 2000-2005 by approximately 25,000 people.
The unemployment rate, which is often used as the overall indicator of economic status and health, in the state of Illinois when last measured in December 2017 sits at 4.9%. On a slow but steady decline this continual decrease can be tracked back to a peak high of 9.2% at the start of 2013. Compared to the rest of the country this rate would put it in a tie in 45th place with Nevada and fellow mid-west state Ohio. This declining unemplyment rate can be attributed to a couple different factors. The first of these is an positive growth in the number of working individuals in the state. There are simply more jobs available to those participating the labor force. The job growth has affected all sectors of the workforce in the state including agricultural, construction, and manufacturing. The sectors that saw a decline in job growth were mining and logging, trade and transportation (typically state jobs), and those listed as other services (Burea of Labor Statistics, 2018). All of this is good news except for the declining labor force. “Despite this growth in the working-age population, the Illinois workforce has shrunk by 226,000” (Illinois Policy Report, 2014). This report which showed the declining labor force was conducted in 2014, which is right when the population of Illinois was starting to decline. Unemployment is defined as those who do not currently have a job and have sought employment in the past 30 days. When residents are leaving and the state and those who moved there seeking a job have simply given up, the unemployment rate will still decline.
So what happens in the future? What happens next is pure speculation. The above given reasons are simply not enough of a predictor for future unemployment rates. Illinois has shown consistent decline which is obviously a good thing, but the declining population and therefore declining work force might be what’s driving these numbers. The state government must pass economic legislation promoting job growth and stability that will be necessary to ensure that the unemployment rate continues to decline while also incentivizing the participating work force to stay and entice potential new residents.
Illinois Resident Income and Market
The most recent data collected for median household income in the state of Illinois was conducted in 2016 which came in at $60,960, an increase of 1.4% from 2015. The 2016 figure $60,960 is slightly higher than the US average at $57,617 and puts Illinois 17th in the nation.
The rate of foreclosure in the state of Illinois is also comparable to the national rate. “In December 2017, 2.67 percent of loans in Illinois were seriously delinquent (delinquent 90 days or more or in foreclosure). The national rate stood at 2.59 percent” (Federal Reserve Bank of St. Louis, 2018). Although it is higher than the national average, it’s no where near as high as some states such as New Jersey and Maryland which are approaching 7-8%. The Illinois Housing Development Authority offers an assistance program to its residents who are currently are behind on their mortgage payments. The program, which started in 2016, offers home owners up to $35,000 in assistance towards paying reinstatement fees and/or monthly mortgage payment assistance. Through my research this is the only resource I have found provided by the state that offers direct monetary assistance. The rest of the foreclosure prevention programs provide legal aid, assistance in filings, etc.
The GDP for the state of Illinois for the year 2016 is listed at $796.012 billion. This figure is good for 5th in the country and accounts for slightly above 4% of the total US GDP of $19 trillion. Illinois GDP growth in the year 2016 was at 1% which is slightly below the national rate of 1.5%. It can be broken into a few different sectors, which is led by (unsurprisingly) finance, insurance, and real estate development. This category makes up for roughly $152 billion, which comes to approximately 20% of the total GDP of the state. The next industries that make up the GDP in order are the following: professional and business services ($98B), manufacturing ($88B), government ($65B), education, healthcare services, and social services ($60B), among others. The city of Chicago alone has a GDP of roughly $650 billion, accounting for roughly 80% of the GDP of the state. This statistic must be met with some skepticism though. The resources that figure GDP for large individual cities do so on the metropolitan area, which for Chicago includes portions of neighboring states’ counties (those in Wisconsin and Indiana).
The City of Chicago
The largest city in Illinois and third largest in the country the Chicago metro area is home to over 9.5 million residents. This means that of the roughly 12.8 million people that live in the state nearly 75% of them live within the Chicago metropolitan area. In data collected by the Illinois REALTORS group, median sales price of homes has increased by 3.9% from Jan 2017 to Jan 2018. Using this same study, the average list time of properties is down 7.3% to 51 days. So despite the decline in population of the state, the housing market in Chicago remains strong. The promise of cheap real estate properties left over from the recession has created an environment in which investors can attain and build portfolios with an asset that will continue to appreciate in value. “Lawrence Yun, chief economist for the National Association of Realtors, forecast a 10 percent increase in volume in 2018, based on growth in both the number of homes sold and the prices of those homes”(Crain Chicago Business, 2018). As recovery from the 2008 economic recession continues, prime “distressed homes” are becoming more and more enticing to investors. These properties can be obtained for very modest amounts creating a prime opportunity for investors to create or expand their existing R/E portfolio.
The need for housing in the city can partly be attributed to the rising prominence of Chicago in the tech industry.
The tech industry has a lot to gain by moving to a city like Chicago. The workforce that the city provides is abundant with skilled and highly educated individuals. Of the total population of Illinois 39% of individuals 25 and older hold a degree beyond high school education. This puts the state beyond the national average of 35%. This educated work force will provide the ideal climate for new and established companies to bring their business.