Last year’s increase followed a decline the previous year and prolonged the trend of “hovering at below 5,000 sales, where we’ve been for 10 years,” a consultant says. Sales nationally have climbed about 50 percent in that time.

Dennis Rodkin

Crain’s Chicago Business

February 6, 2019

Compass
This newly built home on Grant Street in west suburban Westmont sold for $545,000 in December.

Local sales of new homes rose a bit in 2018 but continued a decade-long trend that an analyst called “our low plateau.”

Developers sold 3,985 new houses, condos and townhouses in the 10-county Chicago area last year, up 3.1 percent from 2017, according to Tracy Cross & Associates, a real estate consulting firm that tracks new-home sales.

The increase followed a decline the previous year and prolonged the trend of “hovering at below 5,000 sales, where we’ve been for 10 years,” said Erik Doersching, executive vice president at Schaumburg-based Cross, which consults for homebuilders. “We haven’t come up off our low plateau.”

In the years before the mid-2000s housing bust, new-home sales in the region were usually more than 25,000 a year, as the chart below shows, or more than five times the annual sales of the past decade.

In a decade when new-home sales locally have been relatively flat, they have grown by about 50 percent nationwide, although they have not yet regained all the ground lost in the housing bust.

Many of the factors holding down Chicago-area sales have stayed in place, and in some cases worsened, over the past decade, Doersching said. They include slow increases in the prices of existing homes,  preventing new construction from being the lower-priced alternative; a shift in homebuyers’ interest away from outlying suburbs where new-home construction has traditionally been strongest; and population losses in the metropolitan area that reduce demand for housing overall.

Another factor is on the supply side, Doersching said. “Builders tend to go with the luxury-priced product” as a way to justify paying the high land prices that prevail in city neighborhoods and close-in suburbs, Doersching said, “but we see a lot of demand at prices below that, for product priced in the $350,000 to $750,000 range.” The mismatch between supply and demand creates “a void,” he said, and if builders could find a way to deliver new homes at those prices in desirable locations, “we could see sales go up to 8,000” per year.

The developers of 1000M, a high-rise condo development designed by architect Helmut Jahn and planned for South Michigan Avenue, rejiggered the plans on seven floors in 2018 to create smaller, lower-priced units, the Cross report notes, and became one of the city’s biggest sellers of new construction.

When pricing at 1000M was first announced in fall 2017, the lowest prices in the building were above $550,000. In 2018 the developers quietly rolled out a new arrangement: The units on floors 41 to 47 of the 74-story tower will be 325 to 850 square feet, and those prices start at $313,000. The result: The developers announced this week that 20 of the lower-priced units have sold. In all, 37 units have sold in 1000M, according to Cross.

“There’s a lack of supply like that” both in the city and suburbs, Doersching said, “but we see that there’s demand.”

The Cross reports track sales at developments of 10 or more units. Builders in the city and many inner-ring suburbs often build on single lots or a small number of lots; those projects do not show up in the firm’s study.

In the city, 308 new homes were sold last year in the developments Cross tracks. That’s a decrease of more than 30 percent from 2017. Suburban sales totaled 3,677, last year, an increase of 7.4 percent from 2017.

 

 

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