Crain’s reports on a report just released by the consulting firm Appraisal Research Counselors on the jump of downtown new home sales in the second quarter compared with the first quarter.
Appraisal Research Counselors notes first quarter sales were a meager 55 sales while second quarter sales tallied 313, the highest since the fourth quarter of 2007.
But before everyone gets excited about the jump in sales, the second quarter total was 35% below the year ago period, when 484 new home sales were recorded downtown.
“The developments exhibiting the strongest sales were the developers which were offering the largest price discounts,” the Chicago-based firm says in its second-quarter report. “Several buildings have undergone substantial re-pricing of all their unsold inventory in order to quicken the sellout. . . .Other buildings have opted for individual ‘loss-leaders,’ testing the effects of particularly well-priced units on sales pace.”
The price cutting was kicked off in March with an auction of 45 units at Vetro, a 232-unit condo tower at 611 S. Wells St., where prices have been cut about 35%. But many other projects have followed suit, such as the 237-unit R+D 659 project on the Near West Side, where prices have been reduced about 25%, Appraisal Research says.
If the price-cutting continues, the downtown market is likely to continue at a sales pace of about 300 units a quarter, or a more than 1,000 units for the entire year, says Gail Lissner, a vice-president with Appraisal Research.
“If we see more developers try to compete at this level, I believe the sales pace will stay up,” she says. “If they don’t, it may be tough to match this.”
CMK’s 235 W. Van Buren in the Loop seems to be bucking the trend of price cutting and units falling out of contract.
In June, the 714-unit tower at 235 W. Van Buren St. — the largest downtown condo project since the mid 1970s — began closing units.
“We’ve seen a dramatic change in the last couple months, but I assumed that was more because we were delivering product,” says Colin Kihnke, president of Chicago-based developer CMK Cos. “But in talking to other developers and real estate agents, I’ve heard across the board that it’s been a good summer.”
Closings have been held for more than 100 of the roughly 440 units under contract, he says. Just nine contracts have been canceled. And unlike some competitors that have slashed prices, Mr. Kinkhe says he has avoided price reductions because the project, first proposed in 2007, was always focused on budget-minded buyers.
“We are still the cheapest two-bedrooms in the marketplace,” he says.
There are still numerous new buildings that are nearing the completion of construction that still have to close on units in the remainder of 2009 (or go rental- as the Roosevelt Collection has done.)
The second quarter results don’t mean the downtown market for new homes is poised for a quick turnaround, Ms. Lissner cautions.
“We are not going to see a recovery overnight,” she says. A rebound will likely be “painful because of the price levels that can be required to move large number of units.”
Downtown home sales jump compared to first quarter [Crain’s Chicago Business, Thomas Corfman, Aug 17, 2009]
