Market for new homes remains steady for now

Housing starts in the Chicago metropolitan area during 2015 were relatively flat, rising only 0.2 percent, according to Chris Huecksteadt, regional director for Metrostudy, a housing market research firm based in Elgin.

"We recorded 6,023 housing starts in the 12-counties we monitor, including Lake County, Indiana, and the Rockford area," he said. "It was an unspectacular year and if it weren't for the region's top two builders, Cal Atlantic (formerly Ryland) and D.R. Horton, building affordable homes in legacy communities where land prices are low, we would have seen a housing starts drop of 5 (percent) to 10 percent year-over-year. They literally kept the market positive."

For that reason, the "hot" suburbs continue to be Pingree Grove, the west side of Elgin and Huntley, because that is where the affordable lots are available. The difference between buying a house in Huntley, for instance, and buying a house in a close-in suburb could be as much as the difference between $220,000 and $500,000. So, for some, living on the fringes is a financial necessity more than a choice, Huecksteadt said.

"You could not buy a parcel of land today and develop it into lots at the price they are selling their lots. (Builders) are giving them away in the communities on the fringes of the metropolitan area so that they can redirect their efforts to smaller, infill parcels closer to the city where they can sell homes at a better profit," Huecksteadt said. "The recession we just experienced, in effect, halted the urban sprawl here - at least for the present time.

"Builders, in general, are finding a lot of success with smaller projects in the closer-in suburbs, but that does not translate to a large number of housing starts. And the big production builders are still struggling because it is tough to deliver an affordable housing product today unless you are building on lots that you have been able to pick up cheap. Their challenge going forward will be replacing their existing properties as they build out. If you have to buy raw land and develop the lots yourself, taking it through the entitlement process, too, it often just doesn't pencil out. It is too risky," he added.

That is why some of the large national builders have been buying their competition. It is a way to show growth in market share to their stockholders and also to become more efficient by spreading out their costs, Huecksteadt said.

For instance, during 2015, New York Stock Exchange-listed Standard Pacific of Irvine, California, purchased Ryland Homes and are calling the new company CalAtlantic. In addition, Taylor Morrison, a publicly-traded firm based in Scottsdale, Arizona, expanded into the Chicago market by purchasing Orleans Homes.

"Wall Street expects companies to show growth, whereas the local, privately-held builders just have to show a profit. They don't have to demonstrate growth, too," he said.

That is why smaller builders are working to become increasingly efficient and are turning over every stone for opportunities, building eight homes in one location and 50 in another, to remain profitable.

"That takes a lot more effort on their part, than just buying up one farm and dealing with one seller, but it can be very profitable," Huecksteadt said.

As telecommuting becomes more prevalent, some smaller builders are having success by building 10 to 15 units per year across the border in the Lake Geneva area of Wisconsin.

"Why not?" Huecksteadt asked. "These builders are thinking outside the box and realizing that if you have a cellphone and a laptop, you can now live anywhere. Many people aren't commuting to their offices every day anymore, so they might be willing to live in Wisconsin and work remotely four days out of five. The property tax benefits of living in Wisconsin are also intriguing to buyers."

In general, buyers continue to be cautious.

"Many millennials are still sitting the fence, so they are not having the impact on the market that their parents had at their age," he said. "They are also marrying later and changing jobs every few years, so they seem less inclined to get tied down."

"But, the millennials are out there. I anticipate that over the next two or three years, we will see them getting into the market as they experience lifestyle changes like marriage and becoming parents. Our research shows they will be just as conservative in their home-buying as other generations, looking for good school districts above all else. But, at the same time, they will be looking for homes that are greener, a little smaller and have more technology in them.

"Eventually, I expect that if the job numbers remain good and the economy remains steady, there will be a housing crunch as demand for affordably-priced homes in 'good enough' locations exceeds supply in the already-tight resale market. That is when housing starts will take off again. But, until then, flat is the new growth. Builders will be happy if housing starts don't decrease," he said.

Taylor Morrison

Taylor Morrison has announced three new communities. Two are single-family communities, each featuring a relatively small number of homes, 30 and 63, respectively, and the third is a townhouse community made up of 101 units along the train line in Des Plaines.

"We grand-opened Creeks Crossing in Algonquin, which will feature 30 single-family homes. Half the sites back up to permanent open space and many allow for walkout basements," said Bob Meyn, vice president for the Chicago Division of Taylor Morrison. "These two-story homes featuring stone or brick fronts lend themselves to move-up buyers and range in price from the $360,000s to the low $400,000s."

The company has also purchased the 63 remaining lots in a 75-lot subdivision begun by another builder before the recession. Tallgrass in Lake Barrington (at the intersection of Kelsey and River Roads) is an exclusive, single-family community where homes start in the $700,000s. Meyn said the community will offer ranch homes, conventional two-story homes and two-story houses featuring first-floor master suites, situated on one-acre homesites. Tallgrass is expected to hold its grand opening in May.

Finally, infrastructure work began last fall on Colfax Crossings, a townhouse community half a mile from the Des Plaines train station. Units there will sell in the upper $200,000s and are expected to appeal to young working people who want to be close to a vibrant downtown and to the train. Models are expected to open there in April.

Meyn said Taylor Morrison is also working on a new community of 425 ranch-style, single-family and duplex homes located one mile east of downtown Lake Geneva. Symphony Bay will feature a full amenity center with an outdoor swimming pool, putting green, bocce and pickleball courts and boat slip access. Sales are expected to start in early 2017. The community will not be age-restricted, but is expected to be particularly popular with active older adults.

"We are bullish about the future of the Chicago market and are concentrating our efforts on three specific types of buyers: move-up buyers, move-down empty-nester buyers and those who want infill locations of all housing types," Meyn said.

K. Hovnanian Homes

K. Hovnanian Homes recently opened Northridge Estates, a 12-lot community in Wheaton with homes starting in the high $600,000s, and it has plans to open four more new single-family communities in the next few months, said Andy Konovodoff, division president.

For instance, pre-construction sales will begin at Christina Court in Arlington Heights in mid-February. Thirteen homes will be built in this exclusive infill community, where prices will start in the high $700,000s.

Three larger communities - Norton Lake in Campton Hills, Sagebrook in South Elgin and Hanover Estates in Manhattan - will all open during March or very early April. They will feature 106 lots, 83 lots and 136 lots, respectively. Home prices in Manhattan will start in the upper $200,000s, while those in South Elgin will start in the low $300,000s and those in Campton Hills will start in the upper $400,000s.

Konovodoff said the company also plans to open a high-end, 56-townhouse community in Libertyville in midsummer.

"We are trying to get back into larger parcels wherever it makes sense, specifically in areas with good schools and good employment corridors," he said. "The last three years we have been doing small deals exclusively and they have just been turning over too fast. So, now we are seeking mega-size infill pieces wherever possible."

"I am more optimistic about the new home construction market than I have been in a long time. We delivered 315 homes during 2015 and expect to deliver between 325 and 350 in 2016," Konovodoff said.

"People need shelter and Chicago is a great place to live. But it is still tough because the millennials are just not coming out of the city. They are continuing to rent as they wait to see how things like taxes and the Illinois pension crisis shake out," he said.

Lexington Homes

Lexington Homes, the Chicago area's locally owned builder with the most closings during 2015, is taking a new approach, according to Jeff Benach, co-principal. It opened models at Lexington Crossing in Rolling Meadows in late 2015 and for the foreseeable future, prospective buyers at several nearby Lexington communities will be sent to Lexington Crossing if they want to walk through and touch what they are considering purchasing.

Lexington Crossing features 54 townhouses at prices starting at $299,000.

For instance, Lexington Row in Vernon Hills will feature a very similar product with upgraded exterior elevations, but the floor plans and interior finishes are the same as the Rolling Meadows townhouses. Lexington will construct 24 townhouses at this community, which was begun before the recession by OPUS. Located in the Stevenson High School district, these units start in the $340,000s.

Following the success of Park Ridge Place, which sold out in 2015, Lexington will open another community in that town, Benach said. Park Ridge Pointe will consist of 25 units, starting in the $350,000s. It is expected to grand open in April and prospective buyers will also travel to Rolling Meadows to view models.

This summer, Lexington Pointe will open in Des Plaines. The 62-unit community will be located south of the downtown area and will start in the $290,000s. That community will also use the Rolling Meadows models.

Similar townhouse communities will also be built in the Bridgeport and Hyde Park neighborhoods of Chicago. Models for those buyers will be centrally located in Bridgeport, Benach said.

Lexington also plans to embark on a single-family home project in Arlington Heights. It will be called Lexington Towne at Arlington Heights and will feature 15 single-family homes in the 3,000 to 3,300 square foot range. Located south and west of the downtown area, they are expected to open in April and will start in the low $700,000s.

"During 2015 we closed 110 units, selling out communities in Palatine, Park Ridge, Morton Grove and Chicago's Bridgeport neighborhood. We expect to close a similar number in 2016. The following year, however, we expect sales to jump to between 140 and 150," Benach said. "Building on infill locations in popular nearby suburbs and Chicago is our business model. We choose to leave the 'outer lanes' to the other guys."

Toll Brothers

Toll Brothers opened sales on 63 lots in the Tanglewood Hills community in Batavia last summer, a large existing community with walking/cycling trails, an on-site elementary school and a swim and tennis club. Another builder began Tanglewood Hills but never finished it, because of the Great Recession. Toll Brothers is building ranch and two-story plans, averaging 4,000 square feet, on this final phase of the community where the lots are approximately a half-acre each.

According to Chris Nickel, Toll Brothers' Illinois Division vice president, the builder has no firm plans to open any other communities this year while it continues to build out large communities like Bowes Creek in Elgin and The Woods of South Barrington, and a smaller condominium project called Patriot Common at The Glen in Glenview.

"We do not release sales figures by division, but our sales in 2015 were up over 2014 and we expect to do even better in 2016," Nickel said. "We continue to look for infill properties in the best communities with the best schools and if we can find already-developed lots, that is even better because it allows us to skip the 12 to 36 months of improvements and approvals involved in working with raw land."

Typically, according to Nickel, Toll Brothers does not push the edges of the metropolitan area, choosing infill locations instead whenever possible, because "those fringe locations just don't work for us with our average price point of above $700,000. Bowes Creek in Elgin, with prices beginning in the mid-$200,000s, is clearly an outlier for us.

"We are seeing lots of baby boomers in the marketplace who are looking for ranch plans and first-floor master bedroom suites, so we are working to meet that need, in particular, in all of our communities," he said.