A second-quarter bump in the 10-county region wasn’t enough to counteract the market’s plunge in sales early in the year.

Dennis Rodkin

Crain’s Chicago Business

August 08, 2018

 

 

 

 

 

 

 

 

 

Southwestern Real Estate
These townhomes, on Colfax Avenue in Des Plaines, are one bright spot on the suburban homebuilding landscape.

One result of the prolonged lull: Fewer subdivisions are under construction in the Chicago area than at any time since at least 1999.

Sales of newly built homes in the Chicago area rose in the second quarter of the year, but not enough to counteract a steep plunge in the first quarter. The result: Sales overall were down in the first half of the year from the same period in 2017, according to a new report by an industry analyst.

Builders sold 1,090 new homes in the 10-county metropolitan area in the second quarter, according to a report from Tracy Cross & Associates, which tracks city and suburban sales in developments of 10 units or more. That’s an increase of 5.3 percent from 1,035 sales during the comparable period last year.

But the increase followed a 17 percent drop in the first three months of the year. Thus, the sales total for the first six months of the year, 2,161 homes, was down 7 percent from the mid-year sales figure for 2017, 2,323 sales.

A key reason, according to Erik Doersching, executive vice president of Schaumburg-based Tracy Cross, is the lack of a big run-up in prices of existing homes in the suburban regions where homebuilders are most active.

In a typical market, a homebuilder can expect a healthy sales pace if the product is priced at about 15 percent to 20 percent above the prices of existing homes, Doersching said. But with Chicago-area builders’ costs for land acquisition and construction both rising while the value of existing homes ticks up slowly in the post-crash market, he said, builders “come in at a bigger differential above existing-home prices than what (buyers) consider a reasonable premium to pay for new construction.”

Earlier:

Why aren’t there many houses to buy in the city?

Land acquisition costs have gone up in large part because there are few deals to be had on boom-years parcels that went bust and sold at bargain prices, Doersching said. Builders now more often see parcels offered at current market prices.

The brightest spot on the suburban homebuilding landscape this year is Des Plaines, where townhome projects by three separate developers sold a total of 87 units in the first half of the year. The projects, by Lexington Homes, Ryan Homes and Taylor Morrison, are close to city and suburban employment centers, O’Hare and expressways, Doersching said.

Perhaps more important, he said, is that all three projects are priced between $300,000 and $400,000.  “They’re competitive on price with the existing homes,” Doersching said, “and they’re not  50-year-old house” that may need updating.

Jeff Benach, co-principal of Chicago-based Lexington Homes, said, “Even though everybody said after the recession that townhouses were dead, now they’re the it product.” In part that’s because they fit onto suburban infill parcels, like the three-acre piece on Lee Street in Des Plaines where his firm’s Lexington Pointe is building.

Earlier:

New-home sales fall in 2017

The other reason, Benach said, is that for a buyer, “it’s a cheaper way to get a new home.”

Suburban homebuilding has slowed to the point that there are fewer subdivision developments underway in 2018 than at any time since at least 1999, the report notes.

There are 272 this year, the least of any time in the 19 years Cross has been counting. The next-lowest year was 2014, with 276 projects. In the peak years, 2006 and 2007, there were more than 1,000 developments building, Cross reports. (Some of this figure is multiple developments––townhouses in one and houses in another, for example–within a larger subdivision.)

Even compared to the years well before the boom of the mid-2000s, the current year shows scant subdivision building: In each of the years 1999 through 2003, there were more than 700 subdivisions in progress.

Read more:

Where homes are selling fastest

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