Metrostudy’s 2Q14 survey of the Chicago housing market shows a market rebounding from both the harsh winter and the long fallout from the housing crash. Including single-family detached units, townhouse units and duplex units in the twelve-county Chicagoland region, there were a total of 5,236 new units started in the twelve month period ending in 2Q14, up 21.8% against 2Q13’s rate. This is the highest annual rate of new home construction since 1Q09. The annual rate of closings surpassed 5,000 units in the second quarter, with a tally of 5,045 units closed over the past twelve months, a 16.5% increase over 2Q13. The double digit percentage increases represent the largest rate of growth in annual starts and closings since the early 2000’s.
“The 1,583 units started in the second quarter of this year represents an increase of 20.8% over the 2Q13 starts total,” said Chris Huecksteadt, Regional Director of Metrostudy’s Chicago market. “This is nearly double the first quarter tally, indicating the market is returning to normal seasonal characteristics. We also saw a significant improvement in closings, with1,205 new homes closed in 2Q14, up 9% from 2Q13. With the job growth experienced over the past eighteen months, we expect continued growth in both starts and closings through 2014. The lack of quality resale inventory available in many submarkets will also contribute to growth in new home demand throughout the remainder of this year and into next.”
Nearly two-thirds of all new home starts in the Chicagoland market occurred in four counties: Cook, Kane, and Will in Illinois and Lake County in Indiana. Throughout the collar counties, a significant increase in construction activity occurred in the first half of this year compared to the first half of 2013. The outlying counties within the greater Chicagoland area are still seeing very little in terms of new home construction. Boone, DeKalb, Grundy, and Winnebago counties saw just 87 combined new home starts in the first half of this year (up, however, from 2013’s numbers).
Finished and vacant inventory has steadily fallen in the overall market, leading to the need for new home construction as demand continues to grow. The supply of finished and vacant inventory rose slightly to 2.5 months for single- family detached and attached homes in the second quarter. “These are the lowest levels of new home inventory we have seen in over six years in the Chicago market,” said Huecksteadt. “The inventory of units under construction has continued to rise through the second quarter, indicative of increased demand and shrinking inventory. Not only is the amount of new home inventory low, but the low levels of resale supply should continue to bring buyers to the new home market.”
As the market has shown steady growth and an increase in demand, the mood among the homebuilding community has continued to improve. We are now beginning to see previously dormant subdivisions become viable, new land/lot development being contemplated, and the potential for actual profits to be realized. The months supply of lot inventory is at its lowest level since late 2008.
As the number of lots in the market has slowly declined, and the rate of new home construction has increased, the months of supply indicator fell to less than 115 months. The peak occurred in mid-2011, when there was a 256.5-month supply of lots in the market. “Of course the whereabouts of many of these lots is still a concern, with many lots considered to be in subpar locations: too far from transportation corridors and job centers and/or located in the wrong school district,” said Huecksteadt. “The biggest question will be whether these lots can be reconfigured and reintroduced into the market at a price that would enable the absorption of these lots.”
Nearly all indications are that the local housing market is on track to continue in recovery mode. This is not to indicate that there will be a quick return to the glory days. Growth will likely be slow but steady. In addition there are still some concerns in the market, most notably the number of foreclosures that have occurred and are still likely to occur through the remainder of this year and the elevated level of unemployment.
On the positive side, according to MLS statistics, demand for single-family homes is at its highest point in over five years, while inventory is near record lows. There is currently a 5.1 month supply of inventory (single-family detached product) listed in MLS, up from prior quarters, but still very low. This increase in demand and relatively low level of inventory led to the first uptick in new home prices in several years. The median price of a home sold through MLS saw it’s first annual increase since March of 2008.
The improvement in the resale market, both in terms of increased demand and stabilizing home prices, should begin to make a new home purchase a more attractive and viable alternative for potential home buyers, many of whom have been leaning toward the resale market, perceiving a better value. In fact, this has already begun, as evidenced by the significant increase in the rate of new home construction through the first quarter of this year. With little new home inventory available, and a declining amount of quality existing inventory, the rate of new home construction should continue to rise.