Browsing all articles from January, 2016

By Dennis Rodkin

Crain’s Chicago Business

January 28, 2016

 

New-home sales slipped in the Chicago area slipped last year, even as homebuilders nationally savored a sizable upswing.

Developers sold 3,765 houses, condos and townhouses in the 10-county Chicago metropolitan area last year, down 1 percent from 2014, according to a report from Tracy Cross & Associates, a real estate consulting firm based in Schaumburg. It was the second straight year of falling sales in the Chicago area.

Chicago is a soft spot in the national homebuilding industry, which posted a 14.5 percent jump in new single-family home sales last year, with volume hitting an eight-year high, according to the National Association of Home Builders.

“Look where they’re going all around the country: up, up, up,” said Tracy Cross, the firm’s president. “Meanwhile, here we’re not moving at all.”

The stagnation is yet another sign of the Chicago housing market’s stubborn refusal to perk up along with other cities more than nine years after the housing crash.

Though Chicago-area new home sales rose 3.1 percent in the fourth quarter from the year-earlier period, it wasn’t enough to pull the full-year total into positive territory.

The market is stronger in the city, where sales rose 10 percent in 2015, than it is in the suburbs, where sales fell 2.3 percent, according to the report. But the city accounted for just 450 the region’s 3,765 sales.

Builders in the city have benefited from the dwindling stockpile of boom-era condos and a lack of new construction for several years following the bust, said Alan Lev, president of Belgravia Group, a Chicago-based builder focused on city projects. Demand for new homes has heated up near job centers in downtown neighborhoods like the West Loop and River West, where Belgravia has developments.

“But you can’t find land to build on; it’s been gobbled up,” Lev said.

Cross’ report covers only developments of about 40 units or more, he said. It does not reflect the numerous North Side homes sold during the year by builders who do one or a few at a time.

A few suburban homebuilders reported gains last year. The region’s top seller, Fort Worth, Texas-based D.R. Horton/Cambridge Homes, sold 573 homes at its nine projects scattered from Volo to New Lenox, up 11 percent from 2014.

The primary reason for the Chicago area’s divergence from the nationwide numbers is jobs, Cross said.

“The markets where they’re doing best on sales are the places with job growth of 3 percent or more,” Cross said. They include Orlando, Dallas, Atlanta and San Antonio.

In the Chicago area, jobs grew 1.02 percent in 2015 through December, according to a report from the Regional Economics Applications Laboratory at the University of Illinois at Urbana-Champaign.

“Our employment side of the equation is not moving as fast as the rest of the country,” Cross said. For every household that moves to a job-growth city from the Chicago area, he said, “that’s one more existing house in the supply here, for shrinking demand.” A guiding principle in homebuilding says one new home is needed for every two new jobs.

Earlier this month, an economist from Zillow, an online real estate marketplace, said slow job growth also was the main factor in hampering home price gains in metro Chicago.

By Dennis Rodkin

Crain’s Chicago Business

January 28, 2016

2017.01.28 crains article-chicago new home sales slip picNew-home sales slipped in the Chicago area slipped last year, even as homebuilders nationally savored a sizable upswing.

Developers sold 3,765 houses, condos and townhouses in the 10-county Chicago metropolitan area last year, down 1 percent from 2014, according to a report from Tracy Cross & Associates, a real estate consulting firm based in Schaumburg. It was the second straight year of falling sales in the Chicago area.

Chicago is a soft spot in the national homebuilding industry, which posted a 14.5 percent jump in new single-family home sales last year, with volume hitting an eight-year high, according to the National Association of Home Builders.

“Look where they’re going all around the country: up, up, up,” said Tracy Cross, the firm’s president. “Meanwhile, here we’re not moving at all.”

The stagnation is yet another sign of the Chicago housing market’s stubborn refusal to perk up along with other cities more than nine years after the housing crash.

Though Chicago-area new home sales rose 3.1 percent in the fourth quarter from the year-earlier period, it wasn’t enough to pull the full-year total into positive territory.

The market is stronger in the city, where sales rose 10 percent in 2015, than it is in the suburbs, where sales fell 2.3 percent, according to the report. But the city accounted for just 450 the region’s 3,765 sales.

Builders in the city have benefited from the dwindling stockpile of boom-era condos and a lack of new construction for several years following the bust, said Alan Lev, president of Belgravia Group, a Chicago-based builder focused on city projects. Demand for new homes has heated up near job centers in downtown neighborhoods like the West Loop and River West, where Belgravia has developments.

“But you can’t find land to build on; it’s been gobbled up,” Lev said.

Cross’ report covers only developments of about 40 units or more, he said. It does not reflect the numerous North Side homes sold during the year by builders who do one or a few at a time.

A few suburban homebuilders reported gains last year. The region’s top seller, Fort Worth, Texas-based D.R. Horton/Cambridge Homes, sold 573 homes at its nine projects scattered from Volo to New Lenox, up 11 percent from 2014.

The primary reason for the Chicago area’s divergence from the nationwide numbers is jobs, Cross said.

“The markets where they’re doing best on sales are the places with job growth of 3 percent or more,” Cross said. They include Orlando, Dallas, Atlanta and San Antonio.

In the Chicago area, jobs grew 1.02 percent in 2015 through December, according to a report from the Regional Economics Applications Laboratory at the University of Illinois at Urbana-Champaign.

“Our employment side of the equation is not moving as fast as the rest of the country,” Cross said. For every household that moves to a job-growth city from the Chicago area, he said, “that’s one more existing house in the supply here, for shrinking demand.” A guiding principle in homebuilding says one new home is needed for every two new jobs.

Earlier this month, an economist from Zillow, an online real estate marketplace, said slow job growth also was the main factor in hampering home price gains in metro Chicago.

 

By Jason Porterfield

Chicago Agent Magazine

January 11, 2016

 

The improving employment picture, a recent interest rate hike and less rigorous loan standards are fueling a dynamic Chicagoland real estate market. Inventory is tight, prices are up and single-family homes are in demand. A relatively warm and snow-free Q4 2015 and an improving economy are also bringing prospective homebuyers into the neighborhoods.

Realtor.com’s housing forecast for 2016 predicts that gains in existing-home sales and an increase in new home construction in the new year will take home sales upward to their highest gains since 2006. Forecasts include moderate but steady growth at 3 percent for both existing-home sales and prices, with higher mortgage rates and continued tight credit playing dampening roles. New housing starts are expected to jump 12 percent year-over-year, while sales of new homes will increase 16 percent. That growth will be spurred by a 2.5 percent increase in gross domestic product and a strengthening job market, while rising prices and difficulty in securing loans will keep the expansion in check.

“I see a good level of activity, and that has to do with the weather,” says veteran broker Mábel Guzmán. “In the last couple years it was pretty horrible. I remember having cancellations, and I also remember having my true grit buyers out there who brought shovels to showings so we could make it up the path. When we look at it, there’s very little product. It’s down 25 percent year-over-year. Heading into the end of the year with the holidays, people don’t want to sell and you start seeing that decline in supply. Thank goodness for new construction. Without it, we wouldn’t really have much going on.”

New construction starts are expected to rise in Chicago: Dodge Data & Analytics recently forecasted a 7 percent increase in construction starts for 2016, higher than 2015’s 2 percent increase over the previous year. Residential starts in particular saw an 11 percent increase over 2014, and are projected to increase by 9 percent in 2016. The current multifamily boom reflects the dominance of apartment building in Chicago, but suburban development has kept pace: 65 percent of new home starts in the first three quarters of 2015 were in Cook, Kane, Will and Lake counties, according to Metrostudy.

Kenneth D. Simonson, chief economist for the Associated General Contractors of America, said that rising construction spending could indicate a need for even more workers. In a market where the construction sector is already leading in jobs added in many states, meeting that demand with qualified workers could be a challenge.

Loretta Alonzo, managing broker at Century 21 Affiliated, sees the market growing at a steady rate. “I think it’s healthy growth, as compared to what we got into about eight or nine years ago,” Alonzo said. “We’re seeing steady growth, which is good. Home prices are a little bit better than they were last year. They’ve increased about 5 percent over last year.”

– See more at: https://chicagoagentmagazine.com/2016-market-outlook/#sthash.ZeIEAAoX.dpuf

 

The 2016 Market Outlook

by Jason Porterfield January 11, 2016

Pricing Give and Take

Housing prices in the Chicago area fluctuated in 2015, according to the Standard & Poor’s Case-Shiller Chicago Home Price Index. The index’s most recent data shows that prices in Chicago fell 0.39 percent from August to September but increased 4.5 percent for the year. Year-over-year, prices rose only 1.1 percent from Sept. 2014. Prices also grew slowly in other parts of the country, but Case-Shiller’s data shows Chicago home prices growing at a slower pace than any of the 20 major metropolitan areas measured by the index. Nationally, the index rose 4.9 percent year-over-year.

As supply fell, median prices in the Chicago area rose 8.1 percent year-over-year in 2015. The Regional Economics Applications Laboratory at the Institute of Government and Public Affairs at the University of Illinois’ (REAL) expectation for 2016 median price gains in the Chicago Primary Metropolitan Statistical Area (PMSA) comprising Cook, DeKalb, DuPage, Grundy, Kane, Kendall, Lake, McHenry, and Will counties falls in the 3.5-percent-to-9.5-percent range, with the median price of homes in the area clocking in at $212,304 by December 2016. REAL forecasts a median price increase of 3.1 percent to 7.4 percent for Illinois, rising to $173,546 by December 2016.

“Our inventory is down more than 13 percent over last year,” Alonzo said. “We just don’t have enough homes to sell. I could see that continuing into 2016. We don’t have enough inventory for the buyers coming into the market. They turn into renters when they can’t find something to buy, so the rental market is tight as well.”

Rosier Employment

Unemployment held at 5.0 percent nationally in November (unchanged from the previous month), according to the U.S. Department of Labor Bureau of Labor Statistics, though it rose slightly to 5.4 percent in the Chicago-Naperville-Elgin Metropolitan Statistical Area. The numbers reflect a general downward trend in the region, where unemployment was at 6.1 percent during the same period last year. The high for 2015 was 6.8 percent, a number the area hit in January.

The state’s unemployment rate rose to an estimated 5.7 percent in November, but still reflects a year-over-year improvement compared to Nov. 2014’s 6.2 percent. Twelve-month-ahead job recovery forecasts have future recovery rates climbing in every sector in Illinois except manufacturing, trade, transportation and utilities, and information in 2016, according to REAL’s Nov. 2015 Illinois Economic Review. The same report forecasts the total non-farm jobs growth rate for Illinois in 2016 falling somewhere between 0.44 percent and 0.84 percent.

– See more at: https://chicagoagentmagazine.com/2016-market-outlook/2/#sthash.46HFHcRj.dpuf

 

The 2016 Market Outlook

by Jason Porterfield January 11, 2016

Financially Stretched

Despite gains in employment, the Conference Board Consumer Confidence Index indicates that consumer confidence has fallen in the fourth quarter, as the index dropped from 99.1 in October to 90.4 in November. The Conference Board cited less favorable views of the job market and declining positivity regarding business conditions as reasons for the fall.

“It comes down to personal economy,” Guzmán said. “If folks feel like they have the sustainability in their personal economy to move forward with this major purchase, they’re going to do it regardless of what’s happening outside. Seventy percent or 75 percent of the public believes that buying a home is still part of their American dream and a goal that they want to achieve.”

Many Americans continue to suffer from the aftershocks of the 2007-2009 recession. The Pew Charitable Trust recently surveyed nearly 8,000 people and found that earnings have remained mostly stagnant, while the rate of savings is very low. Pew found that 1 out of 3 families reports having no savings at all, including one in 10 individuals with annual incomes of more than $100,000.

According to the Confidence Board’s Nov. 2015 Consumer Confidence Survey, consumers aren’t particularly optimistic heading into 2016: the number of respondents expecting business conditions to improve in the next six months fell from 18.1 percent the previous month to 14.8 percent, and the number of respondents expecting fewer jobs to be available over the next six months increased from 16.6 percent to 18.7 percent.

Introducing TRID

More than three months have passed since the TILA-RESPA Integrated Disclosure (TRID) guidelines were implemented, and so far fallout appears to be minimal. Mortgage applications have held fairly steady through December, with slight increases and decreases from week to week, according to the Mortgage Bankers Association. Applications decreased 1.1 percent in the week ending Dec. 11, after gaining 1.4 percent for the week ending Dec. 4.

“The good thing about TRID is we had such good information before it went into effect, that I haven’t experienced any delays or repercussions from it yet in the market,” Alonzo said. “I don’t know what’s going to happen in the spring market, when it gets a little busier, but right now most lenders were prepared for the change and had the systems in place for it. The agents were educated on how it would work, so they understand the time factors now.”

Lenders have eased credit standards in the fourth quarter, continuing a trend from earlier in the year and with the expectation that easing will carry over into 2016, according to Fannie Mae’s fourth quarter Mortgage Lender Sentiment Survey. Conducted in November, the survey found that 14 percent of lending partners expect to ease credit standards for government-sponsored enterprise loans and 9 percent think standards will ease for government loans over the next three months. The percentage of lenders reporting higher purchase demand expectations has fallen since the beginning of the fourth quarter, while remaining higher than at the end of 2014. They had also decreased by 3.2 percent for the week ending Nov. 20 after increasing 6.2 percent the previous week.

The 0.25 percent bump in the federal funds rate announced Dec. 16, 2015 may spur more activity on the market as the long period of nearly 0 percent interest on borrowing that began in Dec. 2008 comes to an end. While rate increases could keep some marginal buyers out of the market, it should have a positive effect by making people realize that 0 percent interest rates won’t last forever, as Guzmán pointed out.

“Generally, what happens historically is it goes up and people realize they need to make a decision and get into the market,” Guzmán said. “People start losing purchasing power, anywhere between 7.5 to 10 percent for every 1 percent increase in the rate.”
Geoff Smith, executive director of the Institute for Housing Studies at DePaul, agreed, though he cautioned that rapid rate hikes could damage the market.

“If you have interest rates for new purchases go up too quickly, the people who have these really great interest rates and really low mortgage payments – if they sell and buy a new home and they have to get a mortgage for that new home – are looking at having to get a higher interest mortgage and having a higher payment,” Smith said. “If interest rates go up quickly, you might see people delaying the decision to buy a new home because they don’t want to take on those new housing costs.”

– See more at: https://chicagoagentmagazine.com/2016-market-outlook/3/#sthash.ixNKa8w7.dpuf

 

The 2016 Market Outlook

by Jason Porterfield January 11, 2016

The Tighter Market

Tracy Cross, president of the real estate consulting and market research firm Tracy Cross and Associates, sees the rising prices and tight inventory as balancing each other out.

“There is some tightness in the existing-home market,” Cross said. “However, that tightness is reflected in price increases that have occurred over the past year, so the tightness in the existing-home market is really reflected in prices moving up, which then moderates the demand side of the equation. We have to say that now existing supply is balanced because prices have moved up to offset an undersupply situation.”

As 2015 draws to a close, realtor.com expects home prices to appreciate by 6 percent for the year and for existing-home sales to finish at about 5.26 million, for an increase of 6 percent. Housing starts are expected to close out the year with a 10 percent jump in overall starts. Single-family starts are expected to have grown by 7 percent.

Building on Construction

Last year proved to be big for Chicago-area builders and developers. New construction has soared as residential construction spending rose to $735 million in October, an increase of 32 percent over the same period last year, according to Dodge Data & Analytics. For the year, about $4 billion has been spent on new construction in the city through October. Year-over-year, construction spending in Oct. 2015 outpaced the Oct. 2014 number by 36 percent.

Statistics released by the U.S. Census Bureau and the Department of Housing and Urban Development show that there were a seasonally-adjusted annual rate 1,289,000 building permits issued for privately-owned homes in November. That number represents an 11 percent increase over the revised October rate of 1,161,000 and a 19.5 percent gain over the 1,079,000 estimated for Nov. 2014. Permits for single-family homes increased by 1.1 percent over October, totaling 723,000. For buildings with five units or more, the November total was 539,000.

Housing starts showed strong growth as well in the middle of the fourth quarter, at a seasonally adjusted annual rate of 1,173,000 in November for a 10.5 percent gain over the revised October rate, and a 16.5 percent improvement over the Nov. 2014 rate of 1,007,000. For single-family housing starts, November showed a 7.6 percent seasonally adjusted gain over the October figures to 768,000.
However, Cross sees limited growth in the new construction sector of the market, as many of the permits issued in the city are for rental properties and niche developments such as senior housing.

“The existing-home market will have a supply level that would be adequate going forward because of the movement out of existing domestic householders,” Cross said. “The new home market’s orientation is principally to infill locations. The supply side also has to increase, but nobody’s putting the shovel in the ground for new development of scale. The number of active developments in the region right now in the new home sector is only 335. There are 335 active subdivisions in the new home sector in the region. In 2005, there were more than 1,400.”

– See more at: https://chicagoagentmagazine.com/2016-market-outlook/4/#sthash.AVZ8XK5U.dpuf

 

The 2016 Market Outlook

by Jason Porterfield January 11, 2016

A Younger Buyer’s Market

Millennials helped shape the market in 2015, and will continue to play a substantial role as the economy continues to improve. Millennials age 25 to 34 make up slightly more than 13 percent of the U.S. population, and rising rents are putting pressure on the renters among them to buy.

Realtor.com pegs the oldest group of Millennials – those aged 25 to 34 – as constituting 30 percent of purchasers of existing homes. Millennials are expected to continue as the largest demographic of homebuyers in 2016, prioritizing neighborhood safety and home quality. City centers and “closer-in” suburbs will be their preference as they look for older homes and shorter commutes.

Younger members of Generation X – age 35 to 44 – are expected to make up the second-largest portion of homebuyers after accounting for 20 percent of home purchases in 2015, according to realtor.com. The third largest group of homebuyers in 2016 is expected to be older individuals or couples, age 65 to 74, who are looking to relocate or retire. This group made up 14 percent of homebuyers in 2015.

Millennials still face significant hurdles in terms of getting financing, even as their job situations improve and their wages increase. Even if they are paying down their debts, lenders may look at how much they still owe and take a pass or require a bigger down payment than they can cover with their savings.

“The biggest hindrance for Millennials is student loan debt and being unable to qualify for a loan,” Alonzo said. “Until we can get some changes through the government on interest rates for student loans and how they qualify for loans, I think we’re going to see those problems with them being able to get into the real estate market.”

The 2016 presidential election promises to have a major impact on the industry, even if the campaign fails to register in the market. Guzmán referenced mortgage interest deductions as one area that could come under fire by a new administration seeking to cut the deficit.

“If they’re not friendly to housing, we could be at risk of losing a couple of things, especially policies that actually help homeowners,” Guzmán said. “If they’re looking at cutting the deficit, they could be cutting mortgage interest deductions. If they do it across the board, in Illinois that translates into $3,000 in tax relief as an aggregate. That money’s nice at the end of the year, especially if you’re seeing stagnant wages or whatever the case may be in your personal economy.”

“Obviously, there are a lot of major policy decisions that have to be made about the housing market,” Smith said. “Income tax, interest rate reductions, Fannie and Freddie. Those are big policy issues that any new administration will likely meet and make decisions on.”

 

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