Builders can’t beat the resale prices of existing homes in Chicago’s slow-rising real estate market, says an executive with a homebuilding consultancy.
Crain’s Chicago Business
July 31, 2019
A row of townhouses under construction in Naperville. They’re priced at about $270,000.
The number of new homes sold in the Chicago area dipped in the second quarter after ticking upward in the first three months of the year, part of a long series of essentially flat business, according to a consultant to homebuilders.
In the 10-county metropolitan area, 1,080 new homes sold in the second quarter, according to data released July 30 by Tracy Cross & Associates. That’s down 2.5 percent from the same period in 2018 and follows first-quarter sales that were up more than six percent from the corresponding period a year ago.
“They go up a little and down a little, but if you look at the long-term line, it’s hasn’t changed in a long time,” said Erik Doersching, executive vice president of the Schaumburg-based firm. “We’ve been seeing long-term flatness, and this is more of the same.”
When reported as percentages, the vacillations are exaggerated somewhat by the small number of sales in either period, Doersching noted, which tends to mask the stasis in the market.
Second-quarter sales have consistently been in the 1,000 to 1,300 range for the past six years, less than one-quarter the norm during the suburban homebuilding heyday of the 1990s and early 2000s. From 1994 through 2006, Chicago-area new home sales were consistently above 4,000 in the second quarter, and at the peak in 2005 surpassed 9,400, according to Cross’ data.
Combining the first two quarters, local sales at mid-year 2019 were up about 1.3 percent from the same period last year. Nationally, sales of new homes increased by 2.2 percent in the first half.
Several factors are holding down local new-home sales, Doersching said. Chief among them is that “builders can’t deliver a new product at a price that competes with existing homes” whose values have grown slowly since the housing bust. The S&P CoreLogic Case-Shiller Indices released yesterday showed Chicago-area homes remain at about 15 percent below their peak value in 2007, while nationwide, home values are 13.5 percent above their highest 2007 level.
With the cost of labor and materials rising and some municipalities pushing for development of only higher-priced homes, Doersching said, homebuilders “can’t make it work against the resale market that doesn’t have a lot of upward movement on price.”
Combined with population loss and the shift in buyers’ tastes from outer suburbs toward the city and inner-ring suburbs, the difficulty in competing with existing-home prices has dramatically reduced the local homebuilding industry. In the northern half of Lake County, one townhouse development and six single-family developments are underway, Doersching said. In the early years of the 21st century, before the housing bust, the corresponding numbers were 35 and 50, Doersching said.
The firm’s data captures only homes sold in developments of 10 or more and covers both detached houses and attached condominiums and townhouses. Homes built on individual lots, a popular model in the city, do not get counted.
In the city, Cross counted 77 sales in the second quarter, up from 59 in the same period last year. In the suburbs, there were 1,003 sales, down from 1,049 in the second quarter of 2018.