After struggling through some harsh years in the residential construction business, builders are feeling more upbeat as traffic to model homes picks up and people buy more newly built homes than at any time since the housing crash.
2016 was the best year for homebuilders in the Chicago area since the housing crash and a national measure of builder confidence, the National Association of Home Builders/Wells Fargo housing market index, reflected the highest optimism in 12 years this month. The housing crash hit in 2008.
“It’s a lot better than it was, but it’s still slow,” said Pat Cardoni, secretary of the Home Builders Association of Greater Chicago and managing broker for Cardoni Real Estate Development. He said business is still being held back by a lack of confidence among buyers and lenders.
There were 6,800 newly constructed homes sold in the Chicago area in 2016, according to Metrostudy, a real estate research company. That remains tiny compared with the 36,000 sold in 2006, but represented a 13 percent improvement over 2015 and a huge improvement from the recessionary period when housing construction almost stopped.
New home construction nationally is only 65 percent of normal levels, said Robert Denk, analyst for the National Association of Home Builders. In 2016, 782,000 homes were built compared with the 1.3 million that’s the norm in the industry. This year has been stronger, with January and February suggesting an annual pace of 819,872.
Patrick Curran, president of West Point Builders, describes the recovery in new home sales as “steady,” but still about a third below the 1990s and early 2000s, a period of time that he considers to be more normal. He expects to see new home sales climb about 5 percent this year. Curran is finishing the first phase of what will be the 450-home West Point Gardens in Elgin. The development was launched just before the crash.
Town homes in West Point Gardens start at $180,000 and single detached homes are in the mid-$200,000s. The prices are unusual in the current market. Since the crash there has been a dearth of affordable homes built as builders have struggled with high costs for land and labor.
About 75 percent of the homes built in the last quarter of 2016 in the Chicago area were priced at over $250,000, with the $300,000 to $399,000 price range being the most common, according to Mark Gianopulos, Metrostudy Midwest regional director. Only about 7 percent were priced below $200,000, leaving little available for young adults interested in a first home.
Builders say they are producing higher-priced homes so they can handle the costs. Contractors ranging from plumbers to electricians left the business in the crash and are now 10 years older and reluctant to return. Lumber has soared because sawmills closed in the downturn, Denk said.
As demand for homes has increased land prices have climbed 10 to 15 percent in Elmhurst over the last three years, said Jim Marzullo, partner in 10 West Development. He said competition for lots in popular areas such as Elmhurst, Oak Brook, Downers Grove and Hinsdale can be so intense “that people line up to buy before you close on the lot.” He builds homes ranging from $1.2 to $1.5 million and says the typical buyer is a two-career couple in their mid-30s, with a second child on the way.
Builders say they are especially busy now filling in lots in established neighborhoods with good schools, access to trains going to downtown Chicago, and within walking distance to entertainment, shopping and parks. Cook County has been the most popular area for building by a wide margin, according to Metrostudy.
“You just don’t see subdivisions anymore,” said Cardoni. He is building homes priced around $1.4 million on single lots in the Lakeview and North Center areas of the city, and $800,000 homes in Naperville.
“$1.4 million is a crazy number, but there’s no place to build for urban professionals who want to live in the city with kids,” he said.
While suburbs far from the city used to be a draw for young families because they could afford homes on cheaper land, Roger Gerstad, president of Gerstad Builders, said that is no longer the case.
“Now the kids don’t want to be that far out,” he said. “And it’s unrealistic for a first-time homebuyer to buy a home unless they have a great job and no debt. There aren’t many of them.”
Gerstad is building in McHenry County, mostly for empty nesters who want to downsize after raising children.
While his buyers typically want to keep the price around $275,000, they want 2,000 square feet instead of 1,800, so they sometimes stretch to $320,000, he said. Sixty percent of the projects he builds are ranch homes on a single floor as people early in retirement plan for periods when stairs are difficult. Two-stories have master suites on the main floor, and “while they don’t like to talk about it, the homes have (Americans with Disabilities Act) stuff like railings in the bathroom,” Gerstad said.
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