Chicago Builders Forecast Improved Housing Market in 2010
A recent round-table conference was attended by representatives of large national companies active in the Chicago market as well as independent and custom builders. All are optimistic about 2010, and several are introducing new floor plans and new home communities.
Attending the conference were David L. Smith, vice president of sales and marketing for Cambridge Homes, Christopher P. Shaxted, executive vice president of Lakewood Home Building Solutions, Curt Langille, president of Lanco Development, Chris Naatz, Midwest area director of marketing for Pulte, Centex and Del Webb, Jeffrey L. Samuels, president of Samuels Homes, Andrew B. Konovodoff, president of Town and Country Homes, and Patrick Curran, president of West Point Builders.
“The signs are positive, with low interest rates, lower home prices and tax credits,” said Konovodoff. “Consumer confidence is growing and unemployment is starting to turn around. A buyer purchasing a $200,000 home today with an FHA mortgage of 3 ½ percent down and a tax credit will have a monthly payment of about $1,200, an affordable number for many first-time buyers. The coming year will definitely be better, and the builders who remain in the marketplace are focused on customer satisfaction to a greater degree than every before.”
Builders cited the extended first-time homebuyer credit and the new repeat buyer tax credit as important stimulants for the 2010 market. In addition, low interest rates and pent-up buyer demand will drive an increase in activity.
“According to industry statistics, 20 percent of the home sales in 2009 could not have happened without the government tax credits, including 80 percent of those homes under $250,000,” Shaxted said. “The extended first-time buyer tax credits plus the new tax credit for repeat buyers will definitely provide a boost, especially when combined with other market factors.”
Smith noted the need for more information for the public about the 2009 tax credits.
“Buyers should realize that the $8,000 tax credit for first-time buyers and the $6,500 tax credit for repeat buyers are available for a limited time, and those who wish to take advantage of the tax credits must purchase a home before April 30, 2010 and close the transaction before July 1, 2010,” Smith said. “Buyers should check federalhousingtaxcredit.com and learn more about how to qualify for the tax credits.”
Housing prices having experienced a correction and have now stabilized, which make them more attractive to first- and second-time buyers.
“Today in many markets, people are able to own a home for a smaller monthly payment than they would pay in rent,” Naatz said. “The current market is an ideal world for first- and second-time buyers, and will also help active adults who are coming to terms with the new pricing realities and are ready to move on with their plans for a different lifestyle.”
With the expected increase in first- and second-time buyers, many companies are reinventing themselves and their product lines to appeal to budget-conscious buyers and those who have different design expectations. Pulte/Del Webb has acquired the Centex brand for a greater saturation of every segment of the marketplace. Town and Country has acquired a new joint venture partner and is focusing on land acquisitions at seven locations with approximately 1,000 homesites. Lakewood Homes has morphed into Lakewood Real Estate Solutions, a third party asset manager that works with banks to manage their acquired assets and is also building a shopping center in Long Grove.
“When financing dried up for our residential products, we developed a clean exit strategy, met our obligations to our homeowners and subcontractors, and are using what we’ve learned in the process to help others in the industry,” Shaxted said. “We are planning to move back into the residential sector as well during 2010.”
Several builders are planning to introduce affordable new floor plans in the coming year. Lakewood Real Estate Solutions anticipates opening a single-family community in Palatine, while West Point Builders will introduce a fourth product line at
West Point Gardens in Elgin, a new series of townhomes with prices ranging from the $170,000s to the low-$200,000s. Town and Country Homes is adding Value-Line affordable single-family homes in several communities, including two models in the $180,000s at Hunt Club in Oswego and two more affordable models at Churchill Club in Oswego. Cambridge Homes is also planning new designs and new communities.
“Generation X and Y buyers have very different needs from the more traditional floor plans favored by older generations,” Smith said. “Many of them have little interest in dining rooms, living rooms are considered flex space and great rooms with adjacent kitchens and large breakfast areas fit more casual lifestyles. As the largest builder in the Chicago marketplace, Cambridge Homes has homes for every generation, and designs are based on feedback from buyers in each group.”
“‘Can the house change with a family’s evolving needs?’ is a key question that builders and buyers alike are asking,” Shaxted said. “Builders and buyers also have to consider the costs of ownership, such as maintenance and energy efficiency, and how consumer costs can be minimized.”
“Buyers today are more interested in quality, comfort and practicality,” Langille said. “For example, they may want a hand-hewn timber mantle and other custom carpentry, but they prefer a 10-foot ceiling over a volume ceiling which they consider harder to heat and clean.”
The changing housing priorities of active adults have been addressed by several builders.
“Active adults buying in Cambridge Homes active adult communities focus on features that capture their imaginations, and they appreciate quality, durability and energy-efficiency,” Smith said. “They may opt for an attached home rather than a detached version of the same plan in order to have the luxuries and conveniences that matter most to them.”
The custom home market is affected in different ways from other real estate segments, and both Samuels and Langille agree that an upturn in consumer confidence will be crucial in more sales.
“The momentum of increased consumer confidence and a more active sales atmosphere helps every builder,” said Samuels, a North Shore custom builder for more than 30 years. “In addition, depending on the location, buyers can take advantage of reduced land costs that typically range between 15 and 20 percent. However, the cost of labor and materials has not decreased, so choosing a reputable builder with a proven track record for quality, reliability and working responsibly within a budget is more important than ever.
“Custom home buyers can become confused by the many “custom homes” on the market today, as well as new players who do not have the longevity or expertise to realistically price and build a quality product. Most of our business comes from referrals from satisfied customers who know from personal experience that we deliver what we promise.”
Curt Langille has been a McHenry County custom builder for 33 years and currently building $500,000-plus upscale villas at The Village of Eagleton Ponds in
Geneva National, Fontana, Wisconsin as well as scattered-site single-family homes in the resort community.
“Having been through a few of these recessions, I have learned to be resourceful,” Langille said. “Our biggest challenge has been financing, but I believe that banks are increasingly discovering that our problems are their problems too. During the past year, Lanco has provided an opportunity for our villa buyers to sell their existing homes. We take them as trade-ins, refurbish them and will hold them until the market improves. Banks have been supportive in this effort because we are adding value to these real estate assets. Throughout the recession, Lanco has met its obligations and maintained an untarnished reputation, a key element in our continued success.”
Though generally optimistic, predictions about the 2010 market are not without cautionary notes.
“Many elements are in play in today’s market,” Konovodoff said. “Our recent sales were 30 to 35 percent first-time buyers, spurred by the tax incentives. I have a concern that we may be stealing from the future. I also believe that the tax incentives should be in effect for a longer period. Many builders have reduced their standing inventory and building a home takes an average of about five months, so timing may be tight. In addition, people with homes to sell may be competing with foreclosures that seem attractive but may present many problems. Overall, though, there are more positives than negatives for today’s buyers, sellers and builders.”
The number of foreclosures at all price points continues to be a problem, affecting consumer confidence, appraisals and pricing.
"Foreclosures, especially on higher-priced properties, require more government intervention because they continue to be a brake on the market recovery,” Shaxted said.
Labor costs are another concern, as are possible changes to FHA financing.
“We’ve seen savings on labor, but not as much as we expected,” Curran said. “Both builders and labor have to adapt to the new realities. I’d rather have 75 percent of a loaf than nothing.”
Changes being discussed on FHA standards could have a major effect on appraisals, mortgage insurance, mortgage underwriting and credit standards, builders agree.
“Standards for evaluating the credit risk each buyer presents were set aside in recent years but if these common sense standards were reinstated, the issue would be resolved,” Naatz said. “To go beyond them would be unfortunate.”
Dave Smith of Cambridge Homes summed up the prevailing mood.
“This is a fantastic time to purchase. Banks want to lend, and buyers want to buy. The combination of forces driving affordability will never happen again in our lifetimes.”
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