Home digest | 'Spooked buyers' amid bad news, slow sales

BY BILL CUNNIFF
Sun-Times Staff Writer

Yorkville tops the Chicago area with a total of 3,000 unbuilt lots at year-end 2007, according to a homebuilding industry survey. Joliet has about 2,100 unbuilt lots, followed by Elgin (1,600) and Pingree Grove (1,500).

Homebuilding companies are also planning much construction in Huntley (1,200 unbuilt lots) and Woodstock (1,100), the report said. Naperville, Oswego and Aurora are in the 750 range, followed by Lockport (600).

These municipalities are all in the 500 range: Lakemoor, Montgomery, Volo, Hampshire and McHenry, according to the survey. New Lenox, Gilberts, St. Charles and Plainfield are in the 300-350 range.

So where is the Chicago area in the homebuilding market cycle now? "The national papers say we won't hit bottom until the third quarter of 2008. I suspect that, in Chicago, we bottomed out in late 2007 -- when we dropped to annualized rate of about 10,000 for-sale permits in the suburbs -- from an earlier rate of 18,000," said Steve Hovany, president of Strategy Planning Associates. The Schaumburg-based homebuilding industry consulting firm also produced the survey about unbuilt lots.

"The awful weather and road conditions have contributed to an even weaker start in the selling season, but we expect the pace to pick up as soon as the weather clears," he said. "A backlog of buyers is building up who have been sidelined for over two years."

How rough was 2007 for the homebuilding industry?

"Well, just over 30,000 permits were issued for [the Chicago area] in 2007," Hovany said. "The city [of Chicago], while down overall, has kept up their permit count, and is now mostly concerned with an overbuilding problem. But in the suburbs alone, the 32,000 permits in 2005 led optimistic [builders] to gear up for 40,000 permits in 2006. We finished last year with about 15,500 permits in the suburbs, only about 30 percent of the capacity with which we entered 2006.

"While the individual building companies have downsized, the number of active subdivisions has remained almost the same," he said. "New openings have declined, but existing [new-home] projects are struggling to close out. We find that 10 to 15 percent of the active development programs are in some stage of shutdown or mothballing. We expect this to increase to 30 percent plus. But it will lead to recovery for the remaining projects."

Have the homebuilding company executives learned any lessons during these tough times? Do they still expect people to buy new homes at the astonishing pace of 2005 and the other glory years?

"2005 is old history," Hovany said. "The market is bouncing along the bottom and forming up the next wave. There are many good things: great mortgage rates, best affordability in years, great selection and better products. The worst is a spooked buyer aggravated by [news of] foreclosures and failed projects."

Will the building companies begin buying greenfields again this year or next year?

"Two big trends this year are intensification in built-up areas and the reworking and renegotiating of large and small failed projects," he said. "Doesn't leave much demand for far-out greenfield development."

Do homebuilding companies now have a grip on what's going on? "Expect more failures as the year goes on," Hovany said. "Some companies get it, others don't. But between intensification and reworking of projects, buyers will find what they want closer in."

Visitors to new-home developments (called "traffic" in builder parlance) totaled 114,150 in 2007, a 27 percent drop from the previous year, according to Greater Chicago Market Report.