Home builders don’t expect return of boom, but can foresee ‘average’ market

Published: Friday, Jan. 11, 2013 5:30 a.m. CDT
Caption
(Sandy Bressner – sbressner@shawmedia.com)
Bryan Michels, who owns Bryan Michels Masonry, works on the exterior of a home under construction in the Highland Woods subdivision in Elgin. The home is being built by St. Charles-based John Hall Homes.

John Hall Jr. would love for the housing boom to return.

But as 2013 dawns, Hall – who helps run his family’s business, John Hall Homes in St. Charles – said he is ecstatic to return to normal.

“Typically, before the boom years, say in the late 1990s until about 2003, we’d build about 10 homes a year,” Hall said. “This year, it’s looking like we’ll be really close to that for the first time in years.

“And we couldn’t be happier about finally getting to be average.”

Last year, after years of sliding, the housing market in and around the Tri-Cities showed signs of stabilizing with home sales increased and prices firmed.

But while the news was good for sellers of existing homes, the better times were shared by those in the business of building new homes.

“We’re not trying to recover the boom,” said Robert Denk, a senior economist with the National Association of Home Builders. “We’re just trying to get back to what we consider to be normal.”

From 2003 to 2007, America experienced a housing boom; low interest rates and readily available loans fueled an explosion in the number of new homes built. That activity spread to Kane County, and the region added new homes by the hundreds, and developers competed for the rights to develop farmland into subdivisions.

As recently as 2007, local municipal building departments recorded two dozen to four dozen new homes per community annually. But when the real estate bubble burst and the economy cratered in 2007, home-building activity locally and nationally followed, Denk said.

New home-building activity quickly was slashed precipitously from the peak. But the numbers were even bad compared to what Denk called his industry’s “normal” – an average of about 1.3 million new homes built annually in the U.S. from 2000 to 2003.

By 2009, new home construction had dropped nationally to 27 percent of Denk’s normal.

And builders in the Chicago area suffered more because their business was cut to as little as 15 percent of the 44,000 new single-family homes built on average from 2000 to 2003 in the Chicago metropolitan region.

From 2009 to 2011, new home activity “bounced along the bottom,” showing little signs of fluctuation from 2009, Denk said.

Since late 2011, the industry’s prospects have brightened.

Data supplied by local municipal building departments indicate the Tri-Cities combined to issue 37 permits for the construction of new single-family homes from January 2012 to November.

That compared to 21 permits issued for the same period in 2011, an increase of 76 percent.

Hall, who builds homes in the Tri-Cities, Elgin and other nearby communities, said his company built five homes in 2012 and began to find work building homes in developing neighborhoods that had lain dormant for years.

“Toward the end of the third quarter, and beginning of the fourth quarter [in 2012], we started seeing a little more action,” Hall said. “And some of it is coming in areas that have been dead for a long time.”

The local data and observations correspond to a trend seen nationally, Denk said. He said national building permit data showed home-building activity increased in 2012 to 41 percent of the 2000 to 2003 national average.

“Things have been getting better,” Denk said.

Illinois has lagged behind the national average; the state in 2012 added only about 15 percent of the new homes that were built annually, on average, from 2000 to 2003.

Denk said the NAHB believes home-building activity will increase nationally and in the Chicago area in 2013.

The NAHB forecasts new home construction activity to increase in Illinois to 30 percent of the 2000 to 2003 average in 2013, and to 50 percent of that average in 2014.

He credited the recent uptick to improvements in the housing market. Firmer housing prices – not aided by tax deductions or other government subsidies – and more sales of existing homes have prompted those who were waiting to build to act.

“The changes in the market have enabled people to come off the sidelines, with the expectation now being that the most expensive thing they will ever build or buy will be worth the same or more, not less, in six to 12 months,” Denk said.

He pointed to NAHB data showing home prices appear to have bottomed in the Chicago area in February and have slowly risen since by about 6 percent to 12 percent.

Denk said the recovery in the Chicago area likely will continue to lag the national average as the state continues to struggle with slower economic growth than some regions and the local housing market works through a relatively large number of foreclosures.

But he said Illinois still should recover faster than “housing bubble states” such as California, Nevada and Florida, where the housing boom blossomed and busted more severely than in most other parts of the U.S.

“Every place is better than the bubble states,” Denk said. “But those aside, Illinois will, unfortunately, recover more slowly than most other states.”

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