Tracy Cross & Associates, Inc.

1st Quarter 2020

 

Production homebuilders in the Chicago metropolitan region registered 994 new construction sales during 1st Quarter 2020, a 12.3 percent decrease from 1,133 sales recorded during the same period in 2019.  Single family sales were down 17.7 percent, while the multi-family sector was off by 3.1 percent.

On a seasonally adjusted annualized basis, the 3,523 sales recorded during the 1st Quarter 2020 reflected a drop of 14.8 percent from 4,136 sales registered in 2019.

Coming off a strong 4th Quarter in 2019, where sales were up 21.1 percent year-over-year, it is likely that the moderation in contract activity during the January-March period was, in part, influenced by the Covid-19 crisis which escalated toward the end of the quarter. Sales activity began to taper as early as March 13th, when the first social distancing protocols were put in place, with the state then closing schools on March 17th and the rest of non-essential businesses and services on March 21st.  With March traditionally representing the strongest month for new construction home sales in the Midwest, the pandemic impacted traffic at models and sales centers throughout the region.

Additionally, a number of new developments that were scheduled to kick-off sales and marketing efforts during the most recent quarter, were not able to launch their full campaigns.  Instead, introductions were converted to soft openings via websites and/or virtual tours.

Also contributing to the region’s lackluster performance during the most recent quarter was a significant drop in contract activity in the city of Chicago.  Sales in the city witnessed a 38.9 percent decline year-over-year, with just 66 contracts signed during the January-March 2020 period.  This compares with the 108 sales recorded during the same timeframe last year.

Suburban sales, in turn, totaled 928 units during the most recent quarter, representing a 9.5 percent drop from 1,025 units registered during the 1st Quarter 2019.  In fact, offsetting improvement in sales in both the western and northwestern suburbs was a major retrenchment to the south/southwest where year-over-year sales activity was down by more than 25 percent.

The majority of sales in the city of Chicago during the quarter occurred outside of the central district at lower price points, with Lexington Village at Avondale leading the market with eight townhome sales, followed by 5748 Hermitage-Condominiums with seven contracts. Additionally, both 680 North Milwaukee and The Boulevard in West Town recorded six condominium sales each during the three-month period.

Cambridge Lakes & Carillon at Cambridge Lakes by D.R. Horton in Pingree Grove continued to represent the overall suburban sales leader during the January-March 2020 period with 54 sales distributed among two single family product lines and two townhome series.  Following D.R. Horton were Pulte’s Wagner Farms community in Naperville with 26 sales (including both single family and townhome products) and Ryan’s Buckingham Place townhome development in Des Plaines with 22 sales.  Rounding out the top 5 were Pulte’s Northpointe single family community in Plainfield with 21 sales and M/I Homes’ Brentwood townhome development in Barrington with 16 sales.  Additionally, the developers of Maison Du Val townhomes in Elk Grove Village were able to convert 16 reservations into contracts during the 1st Quarter 2020 after an initial marketing campaign in late 2019.

Publicly traded, national building companies continued to dominate the new construction home market in the Chicago region during the 1st Quarter 2020, with the top four all registering more than 100 sales during the three-month period.  D.R. Horton led the market with 187 contracts, followed by Lennar at 156, M/I Homes at 141 and Pulte at 126.

It is important to note that M/I Homes officially completed the purchase of Taylor Morrison’s land holdings throughout the Chicago region and started marketing the remaining lots and multi-family units in these communities during the most recent quarter.

Finally, our firm would be remiss not to further address the likely impact of the Covid-19 pandemic upon the Chicago economy and housing market near term. While impossible to fully quantify given the very fluid nature of the situation, we expect that the residential marketplace will be significantly impacted over the next three- to six months as employment uncertainty grips the nation.  Beginning in the 4th Quarter, however, as stimulus efforts now underway, coupled with a coordinated reboot of businesses regionally begin to stabilize the economy, we expect that home sales (in particular) will improve.  Primary for-sale housing segments should regain lost momentum toward the end of 2020 and continue to achieve tangible growth through the balance of the 2021-2025 period, especially given an expected favorable mortgage interest climate for at least the next 24 to 36 months.

 

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