Buyers are paying more per square foot than ever.

Dennis Rodkin
Crain’s Chicago Business
July 28, 2022

Keller Williams Inspire Elgin

Buyers paid a little over $508,000 for this newly built four-bedroom house on Ivy Lane in the Tall Oaks subdivision in Elgin. 

The price of new Chicago-area homes reached a record in the second quarter, pushed up by short supply and hungry demand.

New houses sold at an average of a little over $188 per square foot, while new townhouses and condos went for an average of nearly $327 a square foot, according to a new report from Tracy Cross & Associates, a Schaumburg-based consultant to the homebuilding industry.

In both cases, the figure was the highest in the 20-plus years of data Cross has compiled, according to Erik Doersching, the firm’s president.

The total price buyers paid, $438,307 on average for houses and $590,283 for condos or townhouses, were not records, as both types of housing have been selling at smaller square footages in recent quarters.

While the rising prices of materials and general inflation certainly contributed to higher new-home prices, Doersching said, “the biggest factor is the continuing lack of supply being brought onto the market.”

In the second quarter, 272 new-home developments were underway in the Chicago area, Cross reported, down from 300 at the same time last year and 351 two years ago. When the COVID-19 pandemic dawned, the region’s new-home industry had been in a trough for several years, and there has not yet been time enough to get sufficient new projects into the pipeline to meet demand.

“It takes two or three years to get these things moving,” Doersching said. In the meantime, available inventory was getting sold off in the pandemic-era housing boom.

In the first half of 2022, builders sold 2,682 new homes in the Chicago area, Cross reported, a decline of nearly 16% from a year ago. Of those sales, 205 were in the city, almost 20% below the volume in the first half of 2021.

Buyers shopping for new-construction homes were “eager” in the first half of the year, said Neeraja Yara, a Greatways Realty agent. “They saw prices increasing drastically and interest rates going up too.”

The available inventory has been so low, Yara said, that “a builder can say: ‘This is the house, this is the price. Do you want it? If not, I have other buyers.’ ” Yara represented buyers who paid a little more than $508,000 for a new four-bedroom house on Ivy Lane in Elgin, in the Tall Oaks subdivision by Florida-based homebuilder Lennar.

Lennar initially listed the house at $502,510 in November, and two months later tacked $1,000 onto the price. Yara’s clients put it under contract in January. Their final price for the 2,833-square-foot house, including upgrades, works out to $179 a square foot.

Suburban areas southwest of the city are the most popular selling areas for new homes. Nearly 42% of the 2,682 new homes sold in the first half of the year were there, in Plainfield, Yorkville, Joliet and other towns.

In Plainfield, “everybody was very busy and paying premiums” for the available new homes in the first half of the year, said Maria Bochenek, a Baird & Warner agent. She said clients who closed in June on their purchase of a five-bedroom, $550,000 house on Rustic Wood Lane in a Pulte homes development in Plainfield were “lucky and smart” because they put it under contact in November, “before everything went up even more.”