The Tighter Market
Tracy Cross, president of the real estate consulting and market research firm Tracy Cross and Associates, sees the rising prices and tight inventory as balancing each other out.
“There is some tightness in the existing-home market,” Cross said. “However, that tightness is reflected in price increases that have occurred over the past year, so the tightness in the existing-home market is really reflected in prices moving up, which then moderates the demand side of the equation. We have to say that now existing supply is balanced because prices have moved up to offset an undersupply situation.”
As 2015 draws to a close, realtor.com expects home prices to appreciate by 6 percent for the year and for existing-home sales to finish at about 5.26 million, for an increase of 6 percent. Housing starts are expected to close out the year with a 10 percent jump in overall starts. Single-family starts are expected to have grown by 7 percent.
Building on Construction
Last year proved to be big for Chicago-area builders and developers. New construction has soared as residential construction spending rose to $735 million in October, an increase of 32 percent over the same period last year, according to Dodge Data & Analytics. For the year, about $4 billion has been spent on new construction in the city through October. Year-over-year, construction spending in Oct. 2015 outpaced the Oct. 2014 number by 36 percent.
Statistics released by the U.S. Census Bureau and the Department of Housing and Urban Development show that there were a seasonally-adjusted annual rate 1,289,000 building permits issued for privately-owned homes in November. That number represents an 11 percent increase over the revised October rate of 1,161,000 and a 19.5 percent gain over the 1,079,000 estimated for Nov. 2014. Permits for single-family homes increased by 1.1 percent over October, totaling 723,000. For buildings with five units or more, the November total was 539,000.
Housing starts showed strong growth as well in the middle of the fourth quarter, at a seasonally adjusted annual rate of 1,173,000 in November for a 10.5 percent gain over the revised October rate, and a 16.5 percent improvement over the Nov. 2014 rate of 1,007,000. For single-family housing starts, November showed a 7.6 percent seasonally adjusted gain over the October figures to 768,000.
However, Cross sees limited growth in the new construction sector of the market, as many of the permits issued in the city are for rental properties and niche developments such as senior housing.
“The existing-home market will have a supply level that would be adequate going forward because of the movement out of existing domestic householders,” Cross said. “The new home market’s orientation is principally to infill locations. The supply side also has to increase, but nobody’s putting the shovel in the ground for new development of scale. The number of active developments in the region right now in the new home sector is only 335. There are 335 active subdivisions in the new home sector in the region. In 2005, there were more than 1,400.”