The New Construction Chicago site has developed some charts which show the evolution of the city’s residential construction market, including single family homes and high-rise condos.
“The new construction market in Chicago has been growing fast in the last few years as shown by many indicators,” writes Malek Abdulsamad. “The market took years to absorb the inventory created during the recession but now demand is increasing again. The absorption level is at record high since the recession and cranes are again rising around the city.
“Although the new construction market is back again, the new construction product is completely different today as the market has dramatically changed after the recession. Downtown high-rise developers are pursuing apartment buildings and hotel projects, while condo developers are shifting their focus to the neighborhoods, specifically to the North and West sides of town. Downtown condo developers are producing for the high-end of the market; the only high-rise condo buildings in the Near North community area are selling their units for multi-million dollars.”
Abdulasamad provides some charts which indicate the scale and direction of marketplace/building activity.
The first chart “shows that the gap between New Listings and Closed/Under Contract listings is much smaller than it was between 2008 and 2010,” says Abdulsamad. “The number of new listings has declined significantly since the recession, and it has taken a few years for the market to absorb the oversupply. While the gap between new and sold listings is smaller, and despite the market trending upward since 2011, there is a relatively low amount of new inventory on the market compared to 2008. This is another indicator that there is still much room for growth and additional construction in the next few years.
“Finally, 2015 witnessed the largest growth rate in the number of new homes coming on the market since the recession with 59 percent growth between June 2014 and June 2015. Overall growth since 2011 exceeded 150 percent.”
“There are more buyers and less sellers which resulted in the market time for new construction listings dropping. As inventory declined after the recession, and as the market absorbed the oversupply of inventory, and as demand is high again, market time for new construction listings dropped to under 75 days on average in the months leading to 2015 and it is still in that range for the past 12 month,” he writes.
Abdulsamad writes that he finds the third chart, showing the supply of homes for sale by number of bedrooms, “is my favorite indicator of all.”
“Why? This chart shows very vividly the type of product desired on the market. Demand for smaller units is at a record low as shown by the big dip in supply of one bedroom condos. On the other hand, demand for larger units is growing and so most new construction is for single family homes, town homes, and small multifamily buildings (under 20 units)?
“In 2008 supply of smaller units was high and supply of larger units was the lowest. Today, it’s almost the reverse. There is an increasing supply of three, four and five bedroom homes and the decreasing/declining supply of smaller units.
“Overall, developers are still not seeing enough value in building large affordable condo buildings downtown. However, it won’t be a long time before the downtown market gets inflated with apartment buildings and developers start building or converting their buildings to condos,” Abdulsamad writes.