Monday, November 02, 2009

Chicago area new home sales up, contracts up nationally

I'll have an all time one month record for closed unit sales this month of November (assuming all my pending contracts close as scheduled). This is highly unusual as my unit sales volume is greatest every year in April, May or June. It is just one illustration of how unique each year, month and day of the real estate market really is.

This second half of the year has been moved by lower asking prices, lower mortgage interest rates and Uncle Sam's first time buyers' credit. The opportunity to buy a primary long term home or well located condo has been a reality to many, not a sales pitch. Although I still managed to have my average number of sales units thus far, the first half was slower than the third quarter and the attitude full of trepidation. Now people are happy and excited to make a home purchase they feel good about.

Here are a couple stories sent to me by my brokerage showing some positive local and national movement in the market along with analysis for what's coming around the corner.

More positive news on new-home sales

By Alby Gallun, Nov. 02, 2009

(Crain’s) — After enduring a three-year freefall, local homebuilders have nowhere to go but up — or at least sideways.

Chicago-area new-home sales rose for the third quarter in a row on a seasonally adjusted annualized basis, according to housing consultant Tracy Cross & Associates Inc., another sign that the worst is over for homebuilders.

Yet where the market goes from here will depend on the broader economy and job market, which isn’t likely to surge back anytime soon.

“You can’t get blood out of a turnip, and that’s where the problem is,” says Tracy Cross, president of the Schaumburg-based firm.

On a seasonally adjusted annualized basis, local residential developers sold 4,666 homes in the third quarter, up 15% from a rate of 4,054 in the second quarter, according to a recent report published by the firm. The market bottomed out at 2,786 sales in fourth-quarter 2008.

The bad news is that 2009 will likely go down as the worst year for homebuilders since World War II. Even with the recent pickup, the beginning of the year was so bad that Mr. Cross expects developers to sell just 3,700 homes this year, down 42% from 6,374 in 2008 and 89% from the peak of 33,287 in 2005.
Sales in the city bounced back in the third quarter, as developers lured buyers by slashing prices by as much as 35%. Chicago builders sold 1,967 units at a seasonally adjusted annualized rate, nearly triple the 674-unit pace in the second quarter.

Chicago condo developers are still sitting on several thousand unsold units, ensuring that the discounting will continue. The developer of the 168-unit Park Monroe recently reduced prices on several condos in the project at 65 E. Monroe St.; one-bedroom, one-bathroom condos there now are listed at $299,500 down 25% from $399,900 previously, according to the development’s Web site.

The quarter was tougher on the suburban market, where seasonally adjusted annualized sales fell 20% from the second quarter, to 2,699 units. One reason: The $8,000 federal tax credit for first-time homebuyers boosted suburban demand in the first half of the year, but sales petered out in the third quarter because the credit is set to expire Nov. 30, Mr. Cross says.

Because of the time it takes to build a new home, suburban buyers who signed contracts in the third quarter wouldn’t have been able to close on the purchases until after the deadline, removing the sense of urgency to buy, he says. Tracy Cross records a sale when a purchase contract is signed, not at closing.

The tax credit has been less of a factor in the city because new homes there, with an average price of $587,158 in the third quarter, are beyond the means of many first-time buyers, Mr. Cross says.

Congress is considering extending and expanding the homebuyer credit, possibly until April 30, but that won’t be enough to ensure a recovery in the U.S. housing market.

Even if the credit is extended, “home demand and prices will deteriorate again once the credit eventually expires — especially if job creation does not materialize in light of further anticipated increases in housing inventory as mortgage delinquencies and foreclosures rise,” CreditSights Inc., a New York-based research firm, writes in a recent report.

The other key factor is the availability of mortgage financing. Condo developers continue to gripe that lenders have tightened their underwriting standards so much that creditworthy borrowers can no longer get a loan to finance a new condo purchase. And mortgage rates are rising again, fueling concerns that higher borrowing costs could stall a market recovery.

Though he’s written off 2009, Mr. Cross expects new home sales to rise about 20% in 2010, rising ultimately to about 22,000 units annually.
“We don’t see Chicago ever coming back to what we saw in ’04 and ’05,” he says.

CNN reports on sales

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