Chicago Housing Market Glance - September 2008
Chicago Condo Construction Takes a Back Burner: Several developments in the city have halted construction or delayed project starts.
The number of condos currently on the market in Chicago is beyond what’s considered a “normal” level (about five month’s supply). Some reports have the inventory hovering around eight months worth of attached residential units, which equates to 15,000 condos, townhomes, penthouses and duplexes up for sale across the city. The excess of available housing has caused several developers to rethink their plans for adding new units to the mix until some of the slack is taken up.
One account reveals ten condo developments in downtown were called off and others have postponed progress, such as Eco 18. This 90-some unit eco-friendly condominium in the South Loop was scheduled for delivery in 2009 but construction was put on hold until further notice. Pre-sales were not what the developer had hoped and financing is hard to come by when only 20 percent of the units have contracts beforehand. The new occupancy date has been pushed back to as late as 2011.
Developers need to pre-sell a certain portion of residences in order to secure funding for a project. This becomes harder to do when new construction housing opportunities are available en mass to buyers. Chicago Home buyers have so many options (which include already built properties) that pre-construction ventures are unable to fulfill the quota they need to proceed. The phenomenon has inspired developers to offer incentives and other perks in efforts to attract buyer commitment. Still, in many cases, the surplus of housing stock remains an obstacle for getting that magic number of sales needed to move forward.
The Trump Tower is one new condo development that wasn’t held up by current market conditions. The finishing touches will be put in place later this month when a helicopter flies the spire onto the top of the 92-story high-rise. Luxury real estate is generally less influenced by market fluctuations, but the Trump Tower has yet to sell a quarter of its units and is extending the amount of time it will take to pay off building loans.
Economy Woes Impact Buyer Action: Concerns for financial stability and restrictions on mortgage qualifications.
Everyone is watching their money these days, including mortgage lenders. Banks and financial institutions have tightened conditions on loans, both for individual home purchasers and housing developers. Residential builders are faced with needing more investment capital and pre-construction sales upfront while home buyers are also expected to ante up bigger down payments and adhere to stricter credit evaluations to obtain a mortgage.
The interest rate has also gone up from 5.78% to 6.09% in the course of a week – a reaction to the recent stock market downturn. Higher monthly mortgage payments are a warranted concern for buyers, who also feel the effects of a shaky Wall Street in their bank accounts. The government is responding with a $700-billion bailout that would pump funds into U.S. financial corporation. How this will impact the real estate market and mortgage industry is yet to be seen.
