Prices were up about $45,000, according to a consultant’s survey, but one homebuilder says that’s all taken up by the fast-rising cost of materials.
Crain’s Chicago Business
August 5, 2021
Local new-home sales in the Chicago area lost much of their early 2021 vigor in the spring, largely because prices jumped as building-material costs spiked. Also, inventory was unable to keep up with high pandemic-era demand.
After a first quarter when sales were about 76 percent above the norm, sales in the second quarter were ahead of average by about 13 percent, according to a report released today by Tracy Cross Associates, a Schaumburg-based consultant to the homebuilding industry.
“What happened in the second quarter is that with supply-chain issues and the cost of materials, builders really had no choice but to move prices up,” said Erik Doersching, executive vice president of Tracy Cross.
At the region’s five largest homebuilders, prices went up an average of $45,000 between the second quarter of 2020 and the same period in 2021, according to Cross’ analysis.
One prolific homebuilder confirmed Cross’ observation about prices.
“I’ve raised prices by 45 grand since the beginning of the year” at the Lexington Trace development in west suburban Warrenville, said Jeff Benach, the principal of Chicago-based Lexington Homes.
Benach said that because of rising commodity prices, “my margins are still at or below what they were at the beginning of the year. My costs have been going up faster than my prices.”
Even with the price increases, Benach said, his sales have been far faster than expected. He rolled out Lexington Trace about a year ago, expecting to sell its 106 units in roughly two years. As of today he has four or five homes left to sell there.
“We’re going to get out of there a little over a year earlier than planned,” Benach said.
If sticker shock from high prices has turned away some potential buyers, Bob and Mary Aloisio of Dream Town Realty haven’t seen it. To the contrary, they had clients who were interested in a three-bedroom townhouse under construction on Geranium Way in Rolling Meadows. In February, developer M/I Homes was asking $343,600 for the home, in the Meadow Square development.
When supply chain problems began to slow down homebuilding all over the country, the developer put a one-month pause on deliveries “and said, ‘when this one is ready, the price will be about 15 to 20 percent higher,’” Bob Aloisio said.
The buyers were willing to accept both the delay and the higher price. On June 21 they closed on the purchase at $391,570, or 14 percent over the February asking price.
Doersching said builders’ supply hasn’t been keeping up with demand, regardless of the price increases. Despite a vibrant housing market since a few months into the pandemic, only four new developments started during the second quarter, Doersching said.
“More typical would be 15, plus or minus,” he said. The shortage is partly because the upturn in the housing market came as a surprise, too fast for builders to get land and plans out in time. Another factor, both Doersching and Benach said, is that municipalities’ approvals process has been slower because of having to set up virtual meetings and other pandemic-related changes in the process.
Rising prices shifted new homebuyers’ attention to a more affordable product: townhouses and condominiums. Builders sold 592 attached homes—townhouses and condos—in the second quarter in the Chicago area, an increase of 26 percent from a year earlier, Cross reported. Single-family home sales totaled 704, an increase of 11 percent from the year before.
The shift was most pronounced at developments by Lennar, the Miami-based builder that sold the most Chicago-area new homes during the quarter. In the second quarter of 2020, Lennar’s sales were about two-thirds single-family homes, one-third attached homes. A year later, the mix was half and half.
Altogether, builders sold 1,296 new homes in the Chicago area during the second quarter, according to the Cross report, compared to 1,257 in the same period of 2020.
That’s an increase of 3.1 percent, but because 2020 was an unusual year, Crain’s also looked at average sales during the quarter from the past three years and found that sales were up 13 percent from that figure. Thanks to the first quarter’s big increase in sales, Chicago-area new-home sales in the first half of the year were up about 38 percent from the first six months of 2020. Doersching said he doesn’t foresee surges in coming quarters and expects the year to end with sales up about 10 percent from 2020.