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Sales in Chicago dropped to their lowest in 25 years in 2020 while climbing to a 12-year high in the suburbs.

Dennis Rodkin

Crain’s Chicago Business

February 02, 2021

Daynae Gaudio

This new four-bedroom house on Cedarwood Lane in the Cambridge Lakes development in Pingree Grove sold for just under $324,000 in December. 

Sales of new-construction homes in Chicago dropped to their lowest in 25 years in 2020, according to a new report. At the same time, new-home sales in the suburbs surged to a 12-year high. 

It’s more evidence of the tilt toward the suburbs that many people predicted when COVID made density a bad word, and that has been proving out in year-end reports on all segments of the housing market. But housing industry sources say the tilt is happening not only because of COVID

In Chicago, 219 newly built homes were sold during the year, according to a 2020 year-end report released this week by Tracy Cross & Associates, a consultant to the homebuilding industry based in Schaumburg. That’s down 38.5 percent from 2019 sales, and the lowest figure in Cross’s records, which date back to 1995. 

In the suburban area, 4,676 new homes sold in 2020, an increase of 23.3 percent from 2019. It’s the highest figure since 2008.

Combined, city and suburban sales totaled 4,895 in 2020, an increase of 17.1 percent over 2019. It’s the highest number of new-home sales in the region since 2008.

The Cross data captures only homes sold in developments of 10 or more and covers both detached houses and attached condominiums and townhouses. Homes built on individual lots, a popular model in the city, do not get counted. 

In the past several years, builders in the city “had moved into the luxury realm. Most of what was happening was million-dollar-plus homes,” said Erik Doersching, executive vice president at Tracy Cross. “They’ve gotten away from any mainstream type of $300,000-to-$800,000 condo development.” 

COVID made many households need more space, and at the $1 million-and-up level, people increasingly looked to the suburbs to find it. Crain’s reported in January that $1 million-plus home sales rose by 40 percent in the suburbs in 2020, and fell by almost 7 percent in the city. 

Three of the bestselling new-home developments in the city had an average sale price below $1 million, according to Doersching’s calculations. They were CA6 in the West Loop, where 29 condos sold at an average of $830,000 each; Lexington Village in Avondale (16 townhouses at an average of $586,000); and 5748 N. Hermitage (26 condos at an average of $741,000). 

Alan Candea, a partner with his brother in Candea Development, which built the Edgewater condos, said he’s not surprised that most builders’ product delivers at over $1 million. 

Fast-rising land costs and the city’s tight regulations on construction “make it hard to build anything you can sell for less than $1 million,” Candea said. His firm bought the Hermitage land in 2014, he said, and “warehoused it while we did five other projects.”

Had they bought the land five or six years later, he said, “we would have paid 35 to 40 percent more,” which would have been passed along to buyers in the form of higher unit prices. 

Another reason for the big drop in city sales was that “the empty nester, or more broadly the buyer that’s moving from the suburbs to the city, hit the pause button during COVID,” said Jon McCulloch, co-CEO of Belgravia Group, the developer of CA6 in the West Loop. 

McCulloch said that while the average price Doersching cited for his project is accurate, it conceals the fact that CA6 sold several condos priced at more than $1.6 million. They were all sold to existing city households desiring more space, he said. 

The biggest-selling suburban new-home development in 2020 was Cambridge Lakes, a Pingree Grove subdivision by D.R. Horton, a national firm based in Texas. D.R. Horton sold 215 houses there, nearly as many as the total new-construction sales in all of Chicago during the year. A D.R. Horton press representative did not respond to a request for comment. 

Doersching said the strengthened suburban new-home market, if it continues, could “lead to a bigger sense of urgency among those builders to go look for more opportunities” for development. 

At just under 5,000 sales for the year, it’s a long way back to the heyday of Chicago-area homebuilding in the early 2000s, when annual sales were over 20,000 and sometimes over 30,000.

Private homebuilders dominated the local market almost up until the housing crash of 2008-09; publicly traded companies have had the upper hand since then. But the dynamics are now shifting.

H. Lee Murphy

Crain’s Chicago Business

February 01, 2021

Bloomberg

Homebuilders around Chicago are enjoying the best sales they’ve had in more than a decade. The cheers you hear are coming mostly from Wall Street. 

Why Wall Street? Today, the half-dozen largest-volume homebuilders in the metro Chicago market are publicly-traded companies. The market is led by Texas-based mega-builder D.R. Horton, which recorded 665 sales here in the first nine months of 2020, followed by such names as Pulte Homes and Ryan and K. Hovnanian. Together the public builders account for 75 percent of all local new-home construction. 

But now the private builders that have been able to hang on in the face of this onslaught are poised for a comeback as new-home sales around Chicago’s suburbs are suddenly surging. At the end of December the inventory of homes on the market amounted to a mere 1.8 months of supply, a record low since statistics gathering started in 2008. An inventory of closer to six months is considered average. 

In the third quarter last year, homebuyers were clearly turning to new construction, with sales of homes coming to the metro market for the first time up more than 41 percent to 1,448 contracts. Final statistics, due to be released this week, are expected to show new-home sales at or above 5,000 units for all of 2020,  the highest total since 2008. 

“The Chicago market finds itself substantially undersupplied with new homes,” says Erik Doersching, managing partner of Tracy Cross & Associates in Schaumburg, which compiles home construction data. “We’re concerned about the supply issue. We might see sales of 7,000 to 9,000 new homes this year if the supply becomes available. In some suburbs we could see new-home sales double if homebuilders could keep up with demand.”

That’s a sweet turn of events for private builders, who dominated the local market almost up until the housing crash of 2008-09, when banks stopped lending and demand for new homes fell by nearly 90 percent overnight. Within months, mainstay names such as Lakewood, Neumann and Kimball Hill began to crash and burn.

In 2000, when some 25,000 new homes a year were being delivered in Chicago, private builders accounted for roughly 75 percent of all sales. In fact, earlier in the 1990s nine out of every 10 houses built here were erected by a private firm.

In the past decade, with overall sales limping along at a pace of 4,000 home sales a year and even less, it’s been the public companies that have squeezed private firms into a minority position.    

With the market now stirring, surviving private builders are all laying plans to boost their activity. One of the largest, Lexington Homes, which sold 90 homes last year from its headquarters in Lincoln Park, is laying plans to “get to a yearly volume of 200,” says Jeff Benach, Lexington’s principal. “We think we can get to that level in the next couple of years. If we do, it would be our best year since 2005.” 

In Geneva, the Shodeen Group sold 103 homes last year, up nearly 25 percent from 80 the year before. David Patzelt, Shodeen’s president, is projecting a further 20 percent rise this year to 125 units, a far cry from the 20 or so homes the firm sold at its low point around 2010. 

Some years ago, the better-capitalized public companies could often be counted on to take down large tracts of land, frequently hundreds of acres and more, and sit on them waiting for the right time to start building. More recently, Wall Street investor patience has waned, and public companies have retreated from some of their positions on raw land.

Instead, private companies have emerged to acquire choice parcels. Shodeen, for instance, has 900 acres west of Elgin slated for 2,700 homes eventually, plus another 700 acres in exurban Elburn with 100 homes already sold. “We’ve been sitting on that land west of Elgin for over 20 years. We can afford to be patient,” says Patzelt, noting that his company is just finishing up work on its Mill Creek subdivision west of Geneva, featuring 2,000 homes on 2,000 acres as part of a 25-year project. 

While production builders typically aim for budget-priced construction, often at prices below $300,000, private firms are increasingly offering shoppers custom and semi-custom choices. Lexington has a six-acre development in Glenview with each of the planned 29 units expected to be priced at $850,000 and up. “We’ve got to offer more trendy options than the national builders do,” says Benach. 

Still, the private builders face plenty of obstacles. Big national firms negotiate for cheaper prices on everything from appliances to windows, then work on thinner margins, in many cases, than the 20 percent gross mark-ups that private firms count on.

Meantime, the cost of lumber has been soaring, from $450 per thousand board feet in June 2020 to $929 a week ago, with much of that jump blamed on Trump tariffs. Also, there are spot shortages of labor that have prevented some builders from proceeding even when they have sales in hand.

The other challenge is that the Chicago area continues to hemorrhage population overall while employment centers like Schaumburg and Naperville that popped up in the 1980s and 1990s have in most cases been losing jobs. “Satellite employment centers spawn nearby homebuilding,” observes Tracy Cross’s Doersching. “But employment and office development in the suburbs haven’t been growing.”

Jody Kahn, senior vice-president of research at John Burns Real Estate Consulting in Irvine, Calif., says that other metros such as Indianapolis have seen homebuilding flourishing as population streams away from Illinois for lower-tax alternatives. “The great recession of 2008 was particularly difficult for Chicago,” Kahn says. “The city hasn’t been able to spring back from the bottom like other cities have. There has been such a protracted period of minimal new-home construction that the private and local family builders have found they couldn’t make a go of it any longer.” 

Kahn is cautious in predicting a comeback for the local market. Exurban development trends that once pushed building into farming towns like Huntley and Oswego have cooled in recent years. Restrictive zoning laws delay entitlements. “At the moment demand is very intense and supply is super-constrained,” Kahn says. “It remains to be seen how long that remains the case around Chicago.” 

More new homes sold in the first three quarters of 2020 than any comparable period in a dozen years. The sales growth is entirely suburban.

Dennis Rodkin

Crain’s Chicago Business

November 02, 2020

Baird & Warner

This newly built house on Bristle Cone Drive in the Woodlore subdivision in Crystal Lake sold in August for just under $388,000 in August.

Sales of new-construction homes in the Chicago area have been stronger this year than any time since 2008, according to a new report from an industry analyst.

In the first three quarters of 2020, builders sold 3,729 newly built homes in the Chicago area, according to the report from Tracy Cross & Associates, a building industry consulting firm based in Schaumburg. The last time more new homes sold was the first nine months of 2008.

“We knew [sales volume] was going to go up because of low interest rates and the across the board improvement in the suburban marketplace in a movement out of the city,” said Erik Doersching, executive vice president at Tracy Cross. “But it ticked up much higher than we expected.”

At the end of the third quarter, sales of new homes were up 15 percent from the same time last year, according to Cross’s data.

The surge in sales began in the second quarter of the year, but accelerated in the third, like the housing market overall. In the third quarter, homebuilders sold 1,448 homes, the most in any individual quarter since the second quarter of 2008, when there were 2,092 sales.

In 2008, sales were crashing down from the heyday of the early 2000s, when quarterly sales  regularly topped 5,000.

After more than a decade of reports of shallow sales, the increase in 2020 “emphasizes what’s going on in the world with the desire some people are showing to move to the suburbs.”

The increase is entirely suburban. New home sales in the city were down 39 percent in the third quarter from the same time a year ago, to 51 sales, and for the year to date at the end of the third quarter, they were down 28 percent, to 189. Suburban sales were up nearly 49 percent in the third quarter, to 1,397 sales, and 19 percent year-to-date, to 3,540 sales.

“The opportunity to work from home has opened up the suburbs to these younger buyers again,” said Jerry James, president of Edward R. James, a longtime homebuilding firm based in Glenview.

James said another spark for the suburban increase is recent spasms of unrest in the city turning off suburban empty-nesters from moving into Chicago.

“It has unnerved a lot of people who would otherwise be looking at condos downtown when they sell their family home,” James said.

One result: sales are up at Hinsdale Meadows, an Edward R. James development of duplexes and single-family homes priced from the $700,000s to over $1 million. The development sold 10 homes in the first three quarters of 2020, James said, compared to 11 in all of 2019.

Super-low interest rates are the primary fuel of the sales increase, Doersching said. That’s evidenced by the fact that most new home sales were in parts of the far southwest suburbs, like Joliet, Plainfield and Oswego, where prices are the lowest. The buyers who are most sensitive to the difference low interest rates make in their purchasing power tend to be those at the lower end of the price range.

Yet Doersching said that COVID-19 concerns are also playing a role in buyers choosing new homes. “Knowing you’re the first in this house, that everything is clean and safe, makes a difference this year,” he said.

The Cross data captures only homes sold in developments of 10 or more and covers both detached houses and attached condominiums and townhouses. Homes built on individual lots, a popular model in the city, do not get counted.