As the old year ends and a new one begins, what message can buyers shopping for a new home in the Chicago area expect?
Westward Ho!
From my desk in Tribune Tower on Michigan Avenue, I sometimes joke that the Chicago metropolitan housing market has moved so far west it is almost to Iowa. Not true, of course, but each year builders march further west in search of land and the buyers keep coming.
One of the current hot spots is Sugar Grove, several miles west of Aurora, where Kimball Hill Homes, based in Rolling Meadows, is opening its largest project to date, the 3,000-home Settlers Ridge development.
Sugar Grove is only one of the communities stretching along or near Illinois Highway 47–Elburn, Pingree Grove, Huntley and Woodstock are among the others–where rapid residential development is creating construction hot spots.
The fast pace promises to make Highway 47 the new Randall Road. But the real frontier is even further west as builders such as Centex and Kennedy Homes plan developments from Belvidere to Janesville, Wis.
The announced addition of another shift for workers at the large Daimler-Chrysler assembly plant in Belvidere near Rockford, and the willingness of buyers from the Fox River Valley to drive further west for more affordable housing will soon stretch the metropolitan region from Lake Michigan to Rockford–which really is halfway to Iowa.
– One trend for 2006 will be more housing diversity. While it is too early to declare the end of subdivisions and developments with nothing but look-alike homes, buyers shopping in the year ahead are likely to find a wider variety of housing than ever before, especially in mega developments of 1,000 or more homes.
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While most big new developments now include townhouses as well as houses, some builders are mixing in duplexes and attached ranch-style homes as well.
Don’t be surprised if some master-planned communities offer mid-rise buildings and, quite possibly, lofts in and around retail centers.
“There is a growing willingness to allow a diverse product,” said John Carroll, president of Streamwood-based Kirk Corp., describing changing attitudes among suburban officials. Those officials typically have preferred large single-family homes to other types of housing.
The reasons for stepping away from the houses-only formula include a desire to eliminate visual monotony and to provide buyers with the widest possible array of prices and floor plans.
Builders can squeeze more housing onto the available land while municipalities benefit from additional residents and tax dollars.
At the same time, buyers will see development names known primarily for cornfield projects popping up at key transportation centers in close-in Chicago suburbs.
Dan Star, president of the Illinois division of Centex Homes, said his company is working with an inner ring suburb to build several hundred condos in mid-rise buildings.
Neumann Homes has begun sales at a transit-oriented in-fill project in Hanover Park and Scott Pjesky, executive vice-president of Naperville-based Kensington Homes, said his company is looking at “transit-oriented mid-rise opportunities.”
Get ready for slowing appreciation. Many experts are predicting slowing sales in 2006, which may be bad news for sellers, but it should be good for those who are shopping for a home.
“It’s pretty obvious at this point that the real estate market is gradually shifting to more of a buyer’s market,” said James Glassman, senior economist for JPMorgan Chase, who was part of a recent teleconference with David Seiders, chief economist for the National Association for Home Builders.
To attract buyers and keep sales humming, builders are turning to incentives such as upgraded options to attract customers, Seiders said. But as sales taper down, so will home price appreciation so buyers may need to temper expectations for the future.
Price appreciation may have peaked in the second quarter of 2005, Seiders said. He predicted price appreciation will be cut roughly in half over the next year, from an estimated average increase of 10.7 percent for 2005 to 6.5 percent 2006 and 4.4 percent in 2007.
“It’s reasonable to assume that house-price appreciation will be slowing down to the single digits,” Glassman noted.
“The end of the housing boom doesn’t mean the end of house appreciation,” said Ara Hovnanian, chief executive of Red Bank, N. J.-based Hovnanian Enterprises Inc., parent of Lombard-based Town & Country Homes, in an interview with Associated Press.
“Instead of going up 20 percent a year, values are more likely to increase by 3 [percent] to 5 percent, which is normal and healthy. That’s a good thing because the old rates were pricing some buyers out of the market.”
– What about affordability? Like beauty, what makes a home affordable is in the eye of the individual. But there is little doubt that it is a matter of some concern to many people and not just buyers.
While affordability is not a problem in large swathes of the country–cities such as Indianapolis are on “most affordable” lists–it is a problem in many major metropolitan areas where jobs and population continue to grow.
Low mortgage rates and creative new mortgage products have helped buyers, but as rates inch up fewer of them will have such innovative choices available for purchasing a home.
Several Chicago-area builders at a recent forecasting session expressed concern about affordability and more than one said buyers are having a tougher time qualifying for a mortgage.
To find more affordable homes, buyers are willing to drive further, but not cut the size of the home.
“Everyone wants the big house,” observed one local builder.
And builders are trying to maximize interior space by putting as much flexibility into floor plans as possible with rooms over the garage, adding loft and media spaces and offering an optional breakfast room and super family room addition or finished basement.
Buyers “seem to go for structural options,” said Ray Wolford, director of sales for Kimball Hill Homes, even if they cut back on finish upgrades and other interior niceties.
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Housing trends for 2006
– Watch for construction to move to the far reaches of the area, as Rockford becomes the westward limit for many builders.
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– If you’re a potential buyer, expect to have an advantage compared to recent years, as price appreciation slows.
– Don’t be surprised if new mid-rise buildings start to appear in more suburbs, especially around train stations and near downtown areas.
– Watch for ultra-low mortgage rates to vanish and for some creative mortgage products to disappear. As rates inch up, fewer buyers will have this array of choices available to purchase a home.
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