CHICAGO HOUSING 4Q16: The Strongest Level of Annual Starts since the Recession; Growth Expected to continue in 2017

  • New Home Starts in the twelve county Chicagoland region were up 13.4% YoY for the strongest annual starts performance since the last recession.
  • Quarterly new home starts and closings increased in 4Q16, with starts up 11.4% YoY and closings up 4.1%
  • Looking back on 2016, we are ahead of projected growth estimates of 5-8%; Metrostudy expects reasonable market growth, from 8% to 10% in 2017

Metrostudy’s 4Q16 survey of the twelve-county Chicagoland region shows annual new home construction starts including single-family detached homes, townhome units, duplex units and condominium units rose 13.4% YoY to a total of 6,807 new units. The annual rate of starts rose through each quarter in 2016, with fourth quarter starts up by 162 units from 3Q16. This was the strongest annual starts performance since the last recession. The annual rate of closings slipped marginally (compared to the prior year) last quarter, to 6,008 units. This represents a 3.2% decline in number of annual compared to the prior year but an increase of 67 closings from the previous quarter. We are not concerned with the lower closings as the housing inventory remains in check.

The 1,586 units started in the final quarter of this year represents an 11.4% increase from 4Q15 starts, the highest fourth quarterly starts since coming out of the Great Recession. The number of homes closed this quarter also represented the highest fourth quarter activity since the recession, up 4.1% compared to the 4Q15 total. There were 1,700 new homes closed in the fourth quarter of 2016, compared to 1,633 units closed in 4Q15.

“With housing starts up 13.4% in 2016, we look for that activity to continue into 2017 even as economic strength is anticipated to force the Fed’s hand in several more rate hikes in 2017,” said Mark Gianopulos, Director of Metrostudy’s Midwest Region. “Looking back on 2016, we are ahead of projected growth estimates, which was from 5% to 8%.  Economic strength is anticipated to continue in 2017 nationally and in this market, bringing more jobs at higher wages but also bringing higher inflation and interest rates.”

The core counties in the Chicagoland area continue to generate the majority of new home activity while the outlying counties continue to experience modest housing activity. Housing growth continued in nine of the 12 surveyed counties in the market. Cook, Kane and Will counties in Illinois, along with Lake County in Indiana accounted for the majority of activity in the Chicagoland region, with 72% of all new homes activity in 2016 occurring in these four counties. Even as one of the core counties, new home starts in Will have trended marginally lower during the last three quarters of 2016.  Construction activity was off more significantly in McHenry County, dropping by 31% y-o-y.

As demand continues to grow and construction increases in our market, the supply and volume of finished and vacant inventory has remained flat over the last six quarters. The housing inventory supply has remained under 3-months since the beginning of 2015, an indication of a healthy market (currently siting at 2.6 months). With the recent pace of construction activity, it is expected that inventory levels will rise slightly, but this has not happened, even as new home annual growth reached over 13% from 2015.

The supply and volume of lots in the market continue trending lower this quarter as the pace of new home construction (the rate of lot absorption) rose. The months of supply for lots in the Chicago market has fallen from a high of over 250 months in the third quarter of 2011, to a current level of 76.2 months. Increases in construction activity have continued to drive the months of supply indicator downward, falling by 15 months from 2015. If Metrostudy excludes those lots in dormant developments from the survey, the months of supply indicator drops even more significantly.

Given these factors, Metrostudy expects reasonable market growth, from 8% to 10% in 2017 (An estimated 7,300 to 7,500 housing starts). Positive wage growth combined with continued job growth in the 1.0% range should aid the forecast.

For information contact
Mark Gianopulos –
Tel: 773-824-2455

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