A lack of supply is the culprit, a housing analyst says.
Crain’s Chicago Business
November 01, 2021
The pandemic put a bounce into sales of new homes in the Chicago area, but builders haven’t been able to keep up with demand, according to a new report.
Homebuilders sold 1,067 new houses, townhouses and condominiums in the Chicago area in the third quarter, according to the report from Tracy Cross & Associates. That’s a decline of 27% from the same time in 2020, the early part of the pandemic housing boom, when buyers gobbled up builders’ standing inventory.
“Supply was depleted so much that there was no way sales could keep up with what we were seeing last year and early this year,” said Erik Doersching, executive vice president at Tracy Cross, a housing industry analyst based in Schaumburg.
Nathan Stilwell concurs. A John Greene Realtor agent who has been representing new homes in the southwest suburbs for 18 years, Stilwell said in recent months demand has been strong, but supply disappointing.
“Buyers want something (they can move into) now, and it wasn’t available,” Stillwell said. “Builders got so far ahead on sales, they couldn’t keep up” with demand.
“There’s been a lot of buyer exhaustion,” Stillwell said. Some switched to shopping for existing homes, he said, and others “put on the brakes. They’ll be back next year” when more supply might be available.
The third-quarter sales figure dropped down to barely above the figures for the same time in each of the two years previous to the pandemic, when new home sales were lackluster. Sales totaled 1,046 in the third quarter of 2018 and 1,016 in third-quarter 2019. The total was 1,468 in the third quarter of 2020.
The lack of supply in the Chicago area is largely the result of a housing boom happening when nobody anticipated it, Doersching said. Before the pandemic, the new-home market in Chicago was so weak that few new developments were on the boards. Even now, not enough time has elapsed since the unanticipated surge in homebuying took off for builders to get large numbers of new homes started, he said.
The number of active housing developments that Tracy Cross tracks, projects of 10 homes or more, hit a new low, Doersching said. There are 293 developments active now, down almost 16% from 2020. It’s below 300 for the first time since at least 2001, the earliest year covered in the Tracy Cross report. During the mid-2000s housing boom, the figure ran over 1,000, and peaked in 2007 at 1,318.
Doersching said that while he expects builders to respond to the current short supply by launching new developments, so far few if any are on his radar.
Builders who have active developments and ready supply have been the clear beneficiaries, Doersching said, because “they could raise prices.”
At Creekside Crossing, a development in Plainfield by Florida-based builder Lennar, a four-bedroom house on Portage Lane first came on the market in December 2020 at a little more than $448,000.
Lennar raised the price seven times in the next four months, for a total of almost 10% in increases. Buyers put it under contract in April and in August took delivery of the finished house. They paid the full asking price, just under $492,000.
Stillwell, who represented that and other homes in Creekside Crossing, said much of the increase was due to spikes in commodity prices, in particular for lumber, thanks to the year’s supply chain disruptions.
At the end of the third quarter, new-home sales year to date were running ahead of 2020, but that’s largely because sales figures shot upward in the first quarter, up 76% from the norm for the period.
Two less vibrant quarters followed, but at the end of the third quarter, home sales were still running ahead of 2020. By the end of September, builders had sold 4,183 new homes locally, compared with 3,786 in the same period in 2020.