Story URL: http://news.medill.northwestern.edu/chicago/news.aspx?id=112679
Story Retrieval Date: 5/25/2013 3:32:18 AM CST
Regionally, just 83,000 building permits were issued and 80,000 homes began construction in December, the first time the latter figure has fallen below 100,000 since the Census Bureau began reporting it 50 years ago.
Home starts fell 25 percent in the Midwest, more dramatically than any other region, and 16 percent across the country. The nationwide drop was four times the amount expected by economists surveyed by Dow Jones Newswires.
Forecasters may have not anticipated banks’ dramatic downturn in December, which kept many homebuilders from securing lines of credit to start new construction, said Rebel Cole, a professor of finance and real estate at DePaul University’s Real Estate Center.
“Why by new houses when you can’t sell the ones that are out there?” Cole said, referencing the increasing number of foreclosed homes in the Chicago area.
Chicago’s foreclosure rate rose to 2.5 percent, or one in 40 housing units, last year. The average home in Chicago spends about 172 days on the market before being sold, according to real estate site Estately.com.
Local developers have scaled back or stopped taking on “specification” projects, which are built without a contracted buyer.
“I’ve switched my business to custom buildings and renovations,” said Ron Benninga, president of Red House Development Inc. in Lakeview on Chicago’s North Side.
Less new construction may be good for the local housing market, now struggling from a glut of unsold homes.
“It’s not a bad thing. It’s exactly what you want to see,” Cole said. He predicted the industry won’t recover and housing starts won’t increase until banks and homeowners straighten out the credit crisis.
Last year, construction began on 135,100 homes in the Midwest, 36 percent fewer than the year before. Home starts fell about the same nationwide to a total of 904,000.