MARKET IN A MINUTE
August 24, 2021
Market insights you can use, delivered in a single bite.
New Home Sector
Like the existing home market, the Chicago region’s new home market is hotter than it has been in years. A good measure of market activity in this sector is the number of single family building permits issued. From January through June of 2021, homebuilders across the region were issued 4,954 permits for single family homes (a form that includes detached homes as well as “single address” attached units such as townhomes). This is a 52 percent increase over the same period in 2020 and a 39 percent increase over the same period in pre-pandemic 2019. The region is now on pace to issue nearly 10,800 permits for 2021. If this happens, it will be the largest number of permits issued since 2007 – before the housing market implosion.
What’s driving this?
The surge in demand for new homes is being driven primarily by record low inventories of existing homes regionwide. But several additional factors come into play, including the following:
- Demographic shifts – specifically, the aging of the Millennials and Baby Boomers, which give rise to changing housing needs for many individuals and families.
- Rising home values, which have allowed many homeowners who were previously “under water” to sell and make a move to a new home.
- Historically low mortgage interest rates.
- Pandemic de-tethering of home location from work location, giving many more freedom to move around the region.
Will the trend continue?
As long as current underlying market conditions prevail, this trend will likely continue. However, as home prices continue to rise, some softening can be expected. On the other hand, rising home prices may also mean that more under water homeowners are able to finally sell their existing homes and purchase something new. Moreover, homebuilding activity in the Chicago region as a whole has remained at a historically slow pace since the 2008 market meltdown. The sector here has not recovered at the rate it has in many hotter markets around the country, and it is likely that we are now in a period of catching up that could take some time to fully play out before the next downcycle hits.