Homebuilders had one of their best quarters locally in a dozen years.
Crain’s Chicago Business
August 04, 2020
Sales of new homes soared in the second quarter in suburban Chicago, a new report shows, due in large part to epochally low mortgage interest rates and COVID-19 prodding some households to get out of dense areas, an industry analyst said.
“In this environment of very low interest rates, we saw people who might have moved out of their apartment building in a few years saying, ‘Let’s make this move now,’” said Erik Doersching, executive vice president of Tracy Cross & Associates, a Schaumburg-based consultant to the homebuilding industry.
Mortgage rates have been falling throughout the COVID crisis and in July dropped below 3 percent for the first time since at least 1971, when the federal government began tracking them.
Builders sold 1,235 new homes locally in the second quarter, up nearly 15 percent from the same period a year ago, according to the Cross report. It was the third-highest quarterly local total going back about 12 years, to when new-home sales collapsed in the wake of the national financial meltdown, Doersching said.
The increase came from suburban sales, which were up nearly 17 percent during the quarter, to 1,166. Sales in the city dropped by about 11.5 percent, to 69 homes.
Because Cross does not have access to data on where buyers come from, it’s not possible to say whether the boom in suburban sales is part of the much-predicted flight from the city because of the virus.
Doersching said it’s clear that first-time homebuyers led the suburban surge, because two-thirds of the sales there were new homes priced at $350,000 or less, typically the range where first-timers buy. First-time buyers are among the most sensitive to interest rates dropping, as they try to maximize the amount they can spend on a house.
“They may have been getting out of their apartments or their parents’ house,” Doersching said.
The second-quarter jump followed a drop of about 12 percent the previous quarter. The dawn of the virus crisis “stopped people in their tracks,” Doersching said. Like other industries, homebuilding scrambled to put new safety procedures in place, opening the door to a sales boom in the second quarter.
Some of the second-quarter homebuying may have been purchases that would have been made in the first quarter if the crisis hadn’t interrupted.
For the first half of the year, combining the steep dive of the first quarter and the steeper increase in the second, local new-home sales are up 1.3 percent from the first half of 2019. Nationwide, according to U.S. Census Bureau figures, sales of new homes were flat at mid-year compared with 2019.
Tracy Cross’ data covers houses, condominiums and townhouses. It captures only homes sold in developments of 10 or more. Homes built on individual lots, a more common model in the city, do not get counted.