by Peter Thomas Ricci

Chicago Agent Magazine

May 5, 2016

 

See our chart below for the top-selling new construction markets in Chicagoland in Q1 2016, according to the latest “Regional Executive Summary” report from Tracy Cross & Associates, Inc. Click here for more perspective on new construction in Chicagoland.

Top selling new construction markets table

 

 

 

by Peter Thomas Ricci

Chicago Agent Magazine

April 29, 2016

 

The “Regional Executive Summary” report from Tracy Cross & Associates, Inc. is among the most detailed analyses of Chicagoland’s new construction market.

Below, we have collected the four more important findings from the report:

1. New Home Sales are Down – Through 2016’s first quarter, new home sales in Chicagoland totaled 1,008, which is an 8.3 percent decline from a year ago. That decline was driven by a marked fall in new single-family sales, which dropped 14.2 percent to 563; new townhome/condo sales, meanwhile, were up 0.5 percent to 445.

2. Still a Suburban World – Although the city of Chicago’s new construction markets performed better than the suburban markets in the first quarter – sales rose 34.4 percent, compared to a 12.2 percent decline in the suburbs – the overall volume of new construction sales are still heavily concentrated in the suburbs. Of the 1,008 sales in the first quarter, 883 (or 87.6 percent) were in suburban areas.

3. Three Markets – Chicagoland’s new home sales were most prevalent in three markets: Northern Fox Valley, where there were 183 sales (down 4.2 percent from last year); Southwest DuPage/Aurora/Kendall, which had 185 sales (down 8.9 percent); and the Southwestern Corridor, which includes Plainfield, Joliet and New Lenox and had 182 sales (down 5.7 percent).

4. A Rising Marketplace – Despite the disappointing performance in the first quarter, Chicagoland’s new construction markets have risen considerably in the last three years. For the whole region, new homes sold for an average price of $344,220 in the first quarter, up 21 percent from Q1 2013; similarly, average square footage is up 6.12 percent to 2,653, and price per square foot is up 14.03 percent.

Although average sales price has risen more aggressively in the city – up 21.06 percent to the suburbs’ 11.49 percent – several suburban areas have still registered considerable increases in price. In the Northern Corridor, for instance, prices are up 26.13 percent to $414,902, while in the Northwest Corridor, they’re up 35.46 percent to $342,806.

By Dennis Rodkin

Crain’s Chicago Business

April 26, 2016

 

1q16 crains pic

Local new-home sales fell in the first quarter as builders continued to face stiff competition on pricing from existing homes, according to an industry consultant.

Builders sold 1,008 new homes in the Chicago area in the first quarter, down 8.2 percent from 1,099 sales in the same period in 2015, according to data from Schaumburg-based consulting firm Tracy Cross & Associates.

Full-year sales fell in 2014 and 2015 and are forecast to drop again. Homebuilders are on pace to sell 3,571 homes this year, 5.4 percent fewer than last year’s total of 3,774.

The 2016 tally is forecast to be the lowest since 2012, which ended with 3,467 sales.

“The competitive nature of the resale market is strong,” said Tracy Cross, principal of the firm.

Homebuilders typically do best when they can provide a lower-cost alternative to existing homes, but the slow recovery of prices on the resale market is “absolutely making that hard to do,” Cross said.

Local single-family prices were 1.8 percent higher in February than a year earlier, compared with an increase of 5.4 percent for a 20-city index, according to the S&P/Case-Shiller Home Price Indices released this morning. In most of the Chicago area, home values are still below where they were a full decade ago.

Ten years ago, when home prices were rising fast, Chicago-area homebuilders sold 8,094 homes in the first quarter of 2006, according to the Cross report—more than eight times the sales in the first few months of this year. The BEST first-quarter performance was 8,951 sales in 2005.

After a post-crash plunge, homebuilders’ local sales notched sizable increases in every quarter during 2012 and 2013, but since early 2015 they’ve been down seven out of nine quarters.

Cross said the two-year rally was marked by builders “putting small subdivisions on infill locations” in close-in suburbs, but “with those programs sold out, they’re not finding more infill land that’s priced where they need to be.”

Cross’ data covers only developments of 40 homes or more, so it does not capture the boom in construction of individual single-family homes in the city, he acknowledged. Nevertheless, his numbers hint at what’s going on in the city, showing an increase of nearly 35 percent in city sales, from 93 in the first quarter of 2015 to 125 in the same period this year.

Suburban sales were down more than 12 percent in the first quarter, to 883 from 1,006 in first-quarter 2015.

By John T. Slania

Daily Herald
Contributing writer

April 4, 2016

 

 

Luxury apartments were relatively new phenomena in the suburbs in 1969, the year International Village opened separate complexes in Lombard and Schaumburg.

The target tenants were “swinging singles,” young, fun-loving professionals who could rent a one-bedroom apartment for $195 a month.

A newspaper advertisement spelled out the International Village amenities: “dramatic sunken living room, formal dining room, carpeting (even in the kitchen), avocado kitchen appliances … sauna spa and full-equipped health club to keep your formidable form.”

Other apartment developers followed suit, and the 1970s became known as the era of the suburban apartment boom.

But it wasn’t long before the “swinging singles” settled down, got married, had families and bought houses. Suburban apartment development slowed to a crawl.

Now, after decades of dormancy, new luxury suburban apartments are again being built at a furious pace.

Ironically, the rebirth is being led by some of the old “swinging singles” who are now known as “empty nesters.” Their children, the Millennials, are likely interested in renting, as well.

“The two groups driving the demand for apartments are Baby Boomers and Millennials,” said G. Tracy Cross, president of Tracy Cross and Associates Inc., a Schaumburg-based real estate consulting firm.

As a result, new apartment developments are sprouting up across the suburbs.

Schaumburg village officials recently approved construction on the village’s first new apartment complex in 30 years, a 180-unit development near the Motorola Solutions campus.

The Lombard village board is considering three new apartment developments, which, if built, could bring 547 new rental units to the suburb.

Naperville is examining plans for a 39-unit apartment building near its 4th Avenue Metra train station.

Construction recently began on two apartment projects in Libertyville — a combined total of 46 units — the first new rental developments in decades.

And developers in Arlington Heights have completed the conversion of a long-standing high-rise hotel into a 214-unit luxury apartment building.

“Apartment construction in the suburbs has been dormant forever,” Cross said. “Now the construction is there because the demand is there.”

New apartment construction is being driven by a number of social and economic factors, according to Cross, whose firm is often hired by suburbs to conduct a market analysis:

• Baby Boomers are aging and are selling their single-family homes and downsizing into apartments.

• Millennials are deferring the “American dream” of owning a home.

• Homeownership is lower than pre-recession levels: 63.8 percent in 2015 compared with 69 percent in 2005, according to the U.S. Census Bureau.

• There are significant “employment corridors” creating jobs in the suburbs: along I-88 between Oak Brook and Naperville; I-94 near Glenview, Deerfield and Northbrook; and I-90 from Schaumburg to Elgin.

• Developer financing is cheap, and investors are more receptive these days to rental developments than home construction.

These new apartment projects are designed to attract upscale tenants. The wall-to-wall carpeting and avocado refrigerators have been replaced with hardwood floors, stainless steel appliances, granite kitchen countertops and large walk-in closets. The fitness centers and swimming pools remain, but they’ve been supplemented with amenities such as cyber cafes and outdoor sky decks with fire pits.

These are among the selling points at One Arlington, the new 12-story luxury apartment building near Arlington International Racecourse. Besides all the typical upgrades in the studio and one-bedroom apartments, One Arlington features a roof top sky deck that overlooks the racetrack, a music recording studio, a golf simulator, a bicycle storage and repair facility, and a dog wash and grooming room.

“We took an urban solution and put it in a suburban location,” said Rick Cavenaugh, president of Stoneleigh Companies LLC in Barrington, which renovated the old Arlington Sheraton Hotel into the luxury complex.

“What people want today is not what they wanted 20 years ago,” Cavenaugh said. “When you create a new apartment development, it needs to be a luxury product.”

Existing apartment complexes have upgraded to address the luxury trend these days at International Village as well.

For example, the old appliances are now stainless steel, the kitchens feature mahogany cabinets and granite countertops, and residents still recreate in a renovated clubhouse with the latest fitness equipment and free aerobics classes.

Monthly rents at One Arlington range from $1,250 for a studio to $4,000 for a two-bedroom penthouse, Cavenaugh said.

Similar attention to detail is being made by Chicago-based Cedar Creek Companies as it begins work on the 34-unit Manchester Square development in downtown Libertyville.

Manchester Square hopes to attract young professionals because of its luxury amenities and its close proximity to downtown Libertyville’s shopping, restaurants and Metra train station.

“A lot of people are attracted to a downtown — the ability to walk to retail and restaurants. And people are attracted to transit. We think that location offers it all,” said Mark Heffron, a partner with Cedar Street Companies.

When completed later this year, monthly rents at Manchester Square will range from $1,400 for a studio to $3,300 for a three-bedroom unit.

Shodeen Group, a Geneva-based commercial and residential developer, has experienced the complete evolution of the suburban apartment market over the company’s 55-year history, said President David Patzelt.

Shodeen began building and managing apartments in the 1970s, and over the years assembled a portfolio that totaled 900 units, Patzelt said.

Over the past three years, Shodeen has sold off nearly 800 of the older units and is now building luxury apartments, he said.

“When the home building market was hot, it was on fire. People were leaving apartments to buy homes. When the recession hit, there was a big demand for people to go back to apartments,” Patzelt said.

Shodeen now has four luxury apartment projects in Geneva, with monthly rents ranging from $890 for studios to $2,775 for a three-bedroom unit.

Offerings include the cozy Dodson Place in downtown Geneva, located on historic Third Street and within walking distance of the Metra rail station, and the larger Residence of Mill Creek project, located near wetlands, parks and recreational trails.

Shodeen recently launched an expansion of Residence of Mill Creek, with plans to add two 33-unit buildings.

“We believe the trend toward people moving to apartments will continue,” Patzelt said.

“People want an urban lifestyle in a suburban setting.”

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.”

 

– See more at: https://chicagoagentmagazine.com/2016-market-outlook/5/#sthash.R8SCpfwp.dpuf

 

By Dennis Rodkin

October 29, 2015

www.chicagobusiness.com

 

right  back down to basement-graphThe long funk for new-home sales in the Chicago area makes a veteran homebuilding consultant want to take a breath.

A deep cleansing breath.

“I need to meditate or take yoga to deal with it,” said Tracy Cross, whose firm says local new-home sales fell 15.9 percent in the third quarter compared with the same quarter last year.

After sales rose in the second quarter for the first time since late 2013, this year’s third quarter “took it right back down to the basement,” said Cross, principal of Tracy Cross & Associates.

By the end of September, builders were on pace to sell about 3,790 homes this year, virtually even with 2014’s total of 3,798.

Developers sold 802 homes in the Chicago area during the third quarter, compared to 954 in the same period a year ago. Year-to-date sales for the first three quarters totaled 3,025, down 1.3 percent from a year earlier.

Meanwhile, third-quarter new-home sales rose almost 14 percent nationwide, according to federal data released this week.

PRICES AND DEPARTURES

Some of the drag in Chicago’s market comes from still-low prices on existing homes that make them more competitive with new homes, and from people bailing out of Illinois, thus reducing demand for homes.

Slow recovery of prices in the region’s existing-home market means “prices there are more competitive against new construction than you used to see,” said John Carroll, Chicago region vice president of CalAtlantic Homes, the company formed by the Oct. 1 merger of Standard Pacific and the Ryland Group, his old employer.

Many builders have followed buyers’ appetite for new homes in suburban infill locations, which results in smaller clusters of houses being built and sold. They’re also more expensive than the old model of tract houses built on former cornfields at the inexpensive fringe of the suburban area.

And then there’s the anywhere-but-Illinois factor.

“Illinois sucks,” Cross said, “and you’re seeing significant out-migration.” Illinois lost 95,000 people to other states in 2014—the most since 1991—and nothing about the state’s budget crisis this year suggests a bounceback is coming.

The result is decreased demand for homes, whether new or existing.

Carroll said his firm’s sales up almost 9 percent this year, largely because of expansion into northwest Indiana. The firm launched two developments this year in Crown Point, its first in northwest Indiana.

“There’s a better tax structure in Indiana, and job growth,” Carroll said. “There’s been an exodus of people from Chicago to Northwest Indiana. That’s why we’re there.”

CITY SALES UP

For the moment, builders are resigned to the diminished state of the industry. The years-long crawl in the market “is visible,” Carroll said, “but I’m not reaching for a sharp knife yet.”

City homes have been the bright spot this year. In the first nine months of the year builders sold 377 new Chicago homes, both single-family houses and attached housing types (condos and townhouses), an increase of 5 percent from the previous year’s 359. But because city sales are about one-eighth of all the region’s sales, the overall trend was downward.

Suburban sales totaled 2,648 in the first three quarters, down 2.1 percent from 2014.

New homes’ role in the larger Chicago real estate market has dwindled. In the most recent quarter, new homes were just one of 37 homes sold locally, the lowest Cross has seen. For a long stretch of years, new homes accounted for about one in six of the Chicago-area homes sold, Cross said. They moved closer to one in four during the early 2000s housing boom.

Across the country, new homes account for about one in 10 sales, according to the National Association of Realtors.

Chicago Agent Magazine

by Peter Thomas Ricci

August 24, 2015

Assessing the strength of Chicagoland’s new construction market is not easy, what with the many trends, statistics and studies that come out on a weekly basis.  To cut through the noise, we separately interviewed two of Chicago’s most respected new construction experts – Gail Lissner of Appraisal Research Counselors and Tracy Cross of Tracy Cross & Associates – and asked them for their take on new construction in the city and the suburbs, and where they see construction heading in the coming years.

gail-lissnerGail Lissner, CRE, SRA
Vice President
Appraisal Research Counselors 

 Chicago Agent (CA): What is your current sentiment towards new construction in Chicago?

Gail Lissner (GL): Over the past 20 years, Downtown Chicago has added an average of 3,100 units per year. But the market is cyclical, and sometimes the new units were heavily weighted towards condo units (like from 1999-2009) and sometimes it was heavily weighted towards rental units, as it has been for the past several years. Other times, it has been more evenly distributed between condo and rental units. Interestingly, we are adding 3,140 units this year – which is the exact average for the period since 1995. For a market of this size (120,000 units Downtown), this growth rate appears healthy and sustainable.

CA: Why do you think so much of the post-boom new construction has been concentrated in the downtown market? 

GL: Quite simply, that is where the job growth has been. That is where people want to live, and the developers are reacting to that desire. Across the United States, there is a return to the cities and an embracing of the urban experience. Proximity to jobs and retail, walkability, public transportation – those are all amenities that are drawing people downtown. And the high incomes of those target renters have attracted the developers. Neighborhood development is less costly, but is restricted by the lack of sites in the neighborhoods where there is strong demand.

CA: Why has so much of that new construction been rentals, rather than condos?   

Gl: There was a large amount of unsold condo inventory remaining from the pre-2008 period. Some of those units have been rented and continue to be rented, while others were marketed for sale and were slowly absorbed. There’s still an overhang of supply, although very minimal. There were also lots of other reasons besides the supply overhang: lack of buyer demand; job loss; a recession that impacted the balance sheets of many potential buyers and developers; trouble obtaining financing; pre-sale requirements; declining prices; short sales; and underwater borrowers. It is interesting how so many of those factors are no longer issues and now are just a fading memory.

Rental apartments have been lucrative for developers who have selected good sites and developed high-quality buildings. Many of these properties have been sold once construction is completed or the property is stabilized. Those developers and their equity partners have realized some healthy profits with far less risk than would have been associated with a condo development. Those profits then spur new proposals for additional development. Looking forward, we expect that there will more of a balance in the product type being delivered, as condo development again is beginning to occur, although on a very limited basis.

CA: Are you concerned that so much of new construction is geared towards luxury consumers?

GL: Luxury product is definitely the focus of developers, both in the new rental and condo buildings under development in the Downtown market.   In the Downtown market, it is hard not to build for the luxury market. Downtown rental apartment buildings are typically being constructed on sites that are expensive to acquire, with high-rise designs that are expensive to build; those factors drive up the construction costs regardless of the level of finish being desired. So many of the costs are fixed that the luxury development becomes the only kind that is feasible. The cost savings in developing a building with modest finishes or amenities are not significant enough to justify the lower rents that will be achievable under that alternative scenario.

However, developers of rental buildings are also shrinking the unit sizes in these new luxury rental buildings in order keep the unit rents at levels that will be as competitive as possible. In contrast to the shrinking of average units sizes in the Downtown luxury rental market, the average unit sizes are greatly expanding in the new condo development that is occurring in the Downtown market.  Unit sizes are averaging more than 2,000 square feet in nearly all of the new condo projects in the Downtown market that have started marketing since 2014. That average unit size is significantly larger than the average size of units developed in the prior cycle, and also translates into a per unit price that is targeting the luxury buyer with product that is different from what is already existing in the market.  Currently, the rather narrow focus of the condo development that is occurring is not seen as problematic, due to the limited amount of development occurring.

We are seeing a trend towards additional rental apartment development and condo development in the neighborhoods. These projects are smaller, less costly to build, and that will translate into lower rental rates and sales prices than what we are seeing in the luxury Downtown buildings. These new neighborhood rental buildings will still have great contemporary design, the latest features, the most popular amenities (fitness center, roof deck, areas to mingle), but they’ll be at rents below the $3 psf level.  Similarly, the new small condo buildings under development in the neighborhoods are also tending to include larger units, but similarly at prices on a psf basis that provide lower cost alternatives to the new Downtown buildings. Much of this development is being focused at or near transit hubs, allowing easy access to the growing employment downtown. The city of Chicago’s Transit Oriented Development program has been a significant factor in making development feasible outside of the downtown market.

CA: Will the city’s new regulations on affordable housing units (the ARO) have any impact on downtown construction? 

GL: We are already seeing that condo and rental apartment developers are looking at developing sites under their existing zoning and not planning to enhance the density with planned developments that would trigger the affordable housing requirement. So it’s likely that in the near term we may see some less dense developments. Sites that are already entitled for residential development are more desired by developers than sites that would require rezoning. The ARO will impact land prices, as developers will need to factor in these additional expenses and will not be able to spend as much on their land acquisition.

tracy-crossTracy Cross
President
Tracy Cross & Associates, Inc. 

Chicago Agent (CA): What is your current sentiment towards new construction in Chicagoland’s suburbs? 

Tracy Cross (TC): It’s flat all over. We’re only selling at an annual pace of just over 4,000 units, compared with more than 33,000 in the heyday of 2003 through 2005. I would not say the market remains “distressed,” because there are very positive developments in the area, but for the most part, it has remained flat for the last 30 quarters.  Sales have remained flat for two key factors. The first is supply. Chicagoland’s new home market has not produced a significant number of new home sites for development in what one would consider Class-A locations, and most of those “A,” and some “B,” locations that were hit hard by the downturn have been absorbed by the builder community over the last four years, so there’s nothing new coming on the market. For example, in 2005, there were 1,400 active developments throughout the Chicagoland region; currently, there are only 290, and that includes the city.

The second factor is competition from the existing-home market, which benefits agents but dampens sales on the new construction side. The historical new home sales share here in Chicagoland is 16 percent of total sales. Currently, it’s 3.5 percent. There are several reasons for the deterioration. One is the distressed side of inventory, which is greater here in Chicagoland than nationwide. Another is a significant rate of domestic out migration, meaning homeowners are listing their homes in strong locations and moving to another state. That re-sale unit now competes with new construction that is likely 20 miles farther out and more removed from major concentrations of employment.

CA: Why do you think listing prices for new construction have risen so dramatically in recent years? 

TC: From 2008 to 2012, you had a price adjustment in the market. As builders picked up distressed, vacant properties, they came back on the market with a price reduction of almost 15 percent. That reduction has now been fully eroded, and prices are beginning to move up in the single-family sector on an 8 percent yearly basis, while prices are flat in the multifamily sector. Our single-family new homes in the suburban market carry a median price of $295,000.  Price has to go up. You cannot stay on a flat-line basis forever. We expect it to move up as new properties are brought on to the market. There was quite a bit of investor help with vacant developed lots that are starting to resurface, so the supply side will begin to increase. We expect a 20 percent upturn next year on inventory, and in the fourth quarter of 2015 we may see a 20 percent increase over last year.

CA: What are some of the challenges builders face as the new construction market recovers?

TC: There are three big challenges. First is the availability of dirt, meaning land they can use for development. Second is the limited accessibility of financing for the privately-held homebuilder, and third is the approval process. Referencing the third point, we have 297 municipalities and political jurisdictions in this area. In Raleigh, North Carolina, a builder may deal with three villages as they move around in the growth areas in that region, while in Charlotte, they may deal with five to six separate communities.

But here in Chicagoland, when builders vary their geographic position in the market, they’re going to deal with 30 or 40, and each will have different rules. The streamlining of development from a political process is very arduous and complicated.  The problem of the number of municipalities also plays a role in the low availability of vacant land for development, through restrictive zoning not allowing an efficient level of supply to come onto the market. Also, we do not have smaller-lot zoning in many of those suburbs, which makes building to what the market really can afford through density difficult.

CA: Do you think we’ll ever return to widespread spec building, or are those days forever gone in Chicagoland? 

TC: “Speculative building” is a term that gets thrown around with no definition. Spec building is when you start construction on a home before a contract is signed, and honestly, that’s never been a factor in Chicagoland’s market. The reason is you either had privately held builders who were cautious in their construction, or prudent lending practices. The only time you saw speculative building was foundation placement before the winter, but otherwise, 95 percent of construction in Chicago has been done on a contract basis, even during the boom. The only developments that have experienced problems are high-rises in the city, some of which are still trying to sell out.

That said, today’s developments are smaller than in the past because there has been a concerted effort on the part of the builder community to seek in-fill locations, which are by nature smaller. So if you pick up 40 lots in Lisle, there is likely to be very limited land obtainable for a replacement community. As the builder community has moved toward in-fill as an important way to compete with the existing market, the developments have naturally become smaller. That does not mean, though, that in the developing areas of Chicagoland – Pingree Grove, Volo, Plainfield, Joliet – you’re not seeing larger scale development. To some degree, those are the same growth areas as during the boom years.

CA: With lots and materials growing more expensive every year, entry-level new construction is essentially finished. Is that observation consistent with Chicagoland’s suburbs? 

TC: Yes and no. You can still find affordable new construction in Chicagoland, and entry-level buyers are still an important part of the market. The trouble we have is that employment growth is not occurring in manufacturing, blue collar or the service sector, but in the tech and health sectors. And the employees in those sectors, who are members of the Millennial/Gen Y group, are today looking for apartments in the city, as well as suburban locales that are transit-oriented or proximate to shopping and jobs.

Will Millennials/Gen Y become a dominant part of the for-sale market? The answer is “yes,” but not until they get older. Then, they will become a significant part of Chicago’s market. Consider this future scenario: a 60-year-old couple sells their house in Elmhurst and moves to Florida, Arizona or the Carolinas. That supply-side house will be purchased by an older Millennial that is now forming a family. I guarantee it. So this notion that Millennials will have no impact on the for-sale market is simply not true.

CA: Do you think new construction will return to Chicagoland’s “exurb” communities, or is there no longer demand for that kind of sprawl?

TC: Absolutely not. The markets that emerged – DeKalb, for example – may have had the label of an “emerging market” during the boom years, but they’re clearly exurban, and in my opinion will remain exurban for the foreseeable future, unless a large employer relocates there. The only exception to that is Kenosha County, where “just-over-the-line” companies like Amazon, Uline and Snap-on Tools have a strong and expanding presence. And while Kenosha lost its status as a growth area in the mid-2000s, that label may resurface very quickly with the employment growth that is occurring there. Where jobs are, the rooftops follow.

CA: No one has a crystal ball, but based on your observations, where is new construction heading in the next year? 

TC: It will be 20 to 30 percent higher, but that number, 4,500 units, still puts us about 70 percent below long-term trends, and far below the 23,000 units a year we averaged from 1995 to 2006. So rather than a rapid push upward, we’re due for a slow, gradual growth, or what we call “the return of the rational consumer.” That is the guiding line, because there was irrational exuberance during the boom. That does not necessarily mean that Illinois or Chicago will regroup to its historical place in the new home market.

Previously, you could take all the economists in the U.S. and have them forecast for-sale volume. Then, after taking the general consensus of that, you would take 2 percent of it – the resulting number was always Chicago’s new home sales volume. So if you have 1.2 million units, 2 percent of that would be Chicago’s volume. It was a very, very predictable market. Now, though, Chicago is producing about 1 percent of the general consensus, meaning its market share has dropped by 50 percent. We do not see that number moving much above the 1 percent mark moving forward, meaning Chicago will remain at that level over the long term at a new normal. Is it returning to where it was? No. Will it ever? No.

By Dennis Rodkin

Crain’s Chicago Business

July 30, 2015

Compared to other parts of the country, homebuilding has been especially slow to recover in the Chicago area.

The Chicago homebuilding industry is moving in the right direction for the first time in more than a year, but it’s not going anywhere fast.

Sales of new homes in the Chicago area rose 12.7 in the second quarter compared with the year-earlier period, the first quarterly gain since the end of 2013, according to housing consulting firm Tracy Cross & Associates.

But builders, on pace to sell 4,240 homes this year, aren’t even close to levels before the recession, when they sold an average of 23,809 a year, according to Cross.

“We need to put this market on a resuscitator,” said Tracy Cross, president of the Schaumburg-based firm.

Developers sold 1,133 homes here in the quarter, up from 1,005 in second-quarter 2014. Sales totaled 2,218 homes in the first half of the year, up 5.5 percent from a year earlier.

It was an impressive leap after five quarterly declines, including two where the percentage drop was in the double digits. Nevertheless, with sales volume for the past six years running at less than one-sixth what it was during the long-ago boom, “we’re like (the contestants on) ‘American Ninja Warrior,’ trying to grab anything we can hold onto to stay in the game,” Cross said.

For some local homebuilders, even news of an increase falls flat. “Chicago has been down so long, we don’t even feel it anymore,” said Patrick Coveny, president of the Home Builders Association of Greater Chicago and head of Arch Construction Management in Hinsdale.

OUTER EDGES LOSE APPEAL

Even looking at the long-term trends over the past two decades, including ordinary years as well as the frenetic boom years, the current level of home sales is “below 50 percent of what we were doing,” Cross said. Of the past 40 quarters, 27 have had sales totals that were below the corresponding quarter in the previous year.

Reasons for the prolonged crawl include a reduced appetite for living on the outer edges of suburbia, where builders can put up new homes by the hundreds or thousands instead of the dozens they can shoehorn into suburban infill locations.

Suburban home sales totaled 1,003, an increase of nearly 10 percent from the same time a year ago, and the city’s tally, 130 sales, was 41 percent ahead of the 92 homes sold in the second quarter of 2014.

Slow growth in prices on existing homes is another factor. Not only can low-price buyers find existing homes that are affordable, but prices haven’t risen enough in many cases for builders to sell new homes at an acceptable profit.

‘OUTMIGRATION IS SIGNIFICANT’

And, according to Cross, there’s the state’s sorry economic and fiscal climate, a factor that National Association of Realtors economist Lawrence Yun also recently spotlighted as a drag on Chicago’s housing market.

“Domestic outmigration is significant,” Cross said. “Do you think somebody who’s 55 and can afford to leave is going to stay here?” A household that decamps from Illinois to a state without an income tax, such as Florida, Texas or Nevada, “puts another resale home into the inventory, and that takes one away from the new-construction inventory,” he said.

Compared to other parts of the country, homebuilding has been especially slow to recover here. The typical ratio of new-to-existing home sales is about one to six, Cross said. Nationally, the ratio is now about one to 11, but in the Chicago market, it’s one to 30.

Sales of new homes are possible only after construction of new homes, and Cross has noted before that builders have become cautious, if not downright skittish, about building after the huge overhang of the boom-and-bust.

Given the reluctance, “it’s going to be a long time until we get anywhere near the long-term trend level,” Cross said.

LABOR SHIFT

There’s a faint upside to the slow growth.

If local homebuilding were to recover to double or triple its present volume, “we wouldn’t have enough plumbers, electricians or carpenters,” Coveny said.

That’s both because many members of the trades moved on to other kinds of jobs when homebuilding jobs dried up and because those still in the business are busy with commercial construction. With new hotels and office and apartment buildings rising all over the city and in some parts of the suburbs, “our out-of-work list is under 5 percent,” said Pete Olson, president of Lake County Building & Construction Trades. “Between 2008 and 2013, it was at maybe 20 percent.”

Some members of the trades have moved—either permanently or temporarily—to areas where residential construction is recovering faster, Olson said.

Commercial work is more reliable for workers in the trades, Olson said. In Lake County, four major commercial projects have a combined value of $600 million, he said, and are creating scores of construction jobs.

Meanwhile, residential builders “put up a few at a time, because they’re only going to build what they have demand for,” Olson said.

“You can’t count on that work,” he said.