Local new-home sales could see first annual rise since 2005
By: David Lee Matthews April 26, 2012
(Crain’s) — The local homebuilding market is still bad, but it got a little better in the first quarter.
Based on seasonally adjusted, annualized figures from the first quarter, builders would sell 3,008 new homes this year in the Chicago area, up 2.4 percent from 2,938 units sold in 2011, according to a report by Schaumburg-based residential consulting firm Tracy Cross & Associates Inc.
If builders can keep up the current pace, they would log their first annual sales gain this year — barely — since 2005. Yet the first-quarter increase is just one positive marker in a murky sea of market data, some pointing to a nascent recovery and some suggesting more hardship for developers and homeowners.
The improving economy, low prices and mortgage rates have given more people reasons to buy, but foreclosures continue to depress home prices in many neighborhoods and suburbs. Erik Doersching, executive vice president and managing partner at Tracy Cross, expects the market to limp along for a while longer.
“When consumer confidence gets back and improving, you’ll start to see people say maybe the market is reset,” he says. “You may even see it at the end of this year, but we for sure can see it next year.”
Builders still face competition from existing homes, many of which are in distress. New construction is viable where builders have little direct competition and can cut prices to match the existing-home market, Mr. Doersching says.
Oftentimes, they achieve that by scooping up another developer’s stalled community at a discount.
One such buyer is Brian Brunhofer, president of Deerfield-based Meritus Homes, which is relaunching residential projects in Long Grove, Naperville, and St. Charles after the housing bust wiped out prior developers. Mr. Brunhofer said he’s signed contracts for five new homes in the first quarter.
Buying land at low prices allows developers to sell homes at lower prices. But real estate fundamentals still hold true in choosing where to build, he says.
“Location, schools, and people want to feel they’re getting great value,” Mr. Brunhofer says.
Without annualizing sales and adjusting for seasonality, developers sold 849 homes in the Chicago area in the first quarter, up 15 percent from 738 sales during the first quarter of 2011. Sales in the city totaled 149 units, up 66 percent from a year earlier, while the suburban sales rose 8 percent, to 700 units.
The top-selling suburban single-family development in the quarter was the Meadows of Winchester Glen in northwest suburban Carpentersville, developed by Bloomfield Hills, Mich.-based PulteGroup Inc., with 16 sales, according to Tracy Cross. The Chicago leader was the condominium tower at 235 W. Van Buren St. developed by Chicago-based CMK Development Corp., with 21 contracts signed in the first quarter.
Mr. Doersching believes the new-home market will improve modestly in 2013 as the economy continues to recover, estimating that new-home sales could increase 20 percent to 30 percent next year.
That would equate to about 3,600 homes, a far cry from 33,287 sales in 2005, when the local homebuilding market peaked.