Local new-home sales show another positive sign By Eddie Baeb 08-10-2009

Local new-home sales show another positive sign
By Eddie Baeb
Crain's Chicago Business
August 10, 2009

The local market is growing a little less bleak for homebuilders.

For the second straight quarter, sales of new homes climbed higher on a seasonally adjusted, annualized basis, as activity was buoyed by major price cuts and the $8,000 tax credit for first-time home buyers that expires Dec. 1.

The annualized sales rate had fallen 14 straight quarters since peaking at 35,163 in the second quarter of 2005. The rate now stands at just 4,164, up 13% from the first quarter but down 47% from a year ago, according to a report by Tracy Cross & Associates Inc.

“This is significant because it really signifies that the bottom, in our opinion, has been reached,” says Erik Doersching, an executive vice-president and managing partner with Tracy Cross, a Schaumburg-based real estate consulting firm.

The suburbs were responsible for the increase over the first quarter, as the annualized sales rate climbed 20% from the first quarter to 3,386. In the city, the rate dropped 10% to 778.

In terms of actual sales, which Tracy Cross records when a buyer signs a contract for a new home, there were 1,112 in the region during the quarter. That’s slightly more than the 1,039 sales in the first quarter, but down 47% from the second quarter of 2008. Sales in the suburbs during the quarter were down 43% to 904 compared with second-quarter 2008, while in the city sales were off 60% to 208.

The highest number of sales during the quarter occurred in developments targeting first-time buyers and those in so-called “in-fill,” or established, areas, along with some of the projects that target people 55 and older.

“The tax credit has been huge,” says Jeffrey Benach, co-principal with Chicago-based Lexington Homes LLC, who says the firm’s two suburban projects, in Des Plaines and Wheeling, both had solid quarters. “We’ve gone a few months without gloom and doom in the news. For so long, people were afraid to buy because they thought things would turn into crapola the next day.”

Mr. Benach says he thinks prices hit bottom in February and March. He says Lexington dropped prices about 20% from when the two developments were launched a couple years ago and that in the second quarter the company instituted small, several-thousand-dollar price increases as sales firmed.

Tracy Cross’ Mr. Doersching forecasts that sales will continue to gradually rise as the recession abates and wary consumers grow more confident. But he says home prices, which in some cases have been slashed 25%, will remain at today’s low levels because many homes and unfinished lots have been taken back by lenders and resold at distressed prices to new developers who can afford to sell at lower prices.

“Prices have dropped rather dramatically in the last six to nine months,” Mr. Doersching says. “You’re going to see these competitive prices remain for a good 12 months.”

One positive for homebuilders is that there’s much less competition these days. There were 868 active developments in the Chicago area during the second quarter, according to Tracy Cross data, down from almost 1,300 two years ago.

Still, suburban developments averaged 1.3 sales during the quarter — but far better than the fourth quarter last year when that figure stood at just 0.6, according to Tracy Cross data.

“These numbers aren’t stellar by any stretch,” Mr. Doersching says.