A tale of two luxury markets
by Jason Porterfield
The story of the luxury real estate market in Chicagoland is really a tale of two markets. The city’s skyline is dotted with cranes as new buildings go up to accommodate more high-end apartments and condos. But in the suburbs, a dearth of new homes has led to strong demand among luxury buyers for existing homes and the few new developments that are under way.
There is plenty of good news for the overall housing market in Illinois at the close of 2017’s first quarter. Across the state, home sales increased 9.6 percent over the previous year and prices climbed 10.7 percent, according to Illinois Realtors. Statewide, 13,274 homes were sold for a median price of $189,900. Homes sold during March were on the market for an average of 67 days, down from 77 days in 2015.
On the whole, prices in the Chicago area are on the rise. According to the most recent Case Shiller Home Price Index for the Chicago Metro Area, single-family home prices in the city were up 0.2 percent over the previous month and increased about 5.8 percent year-over-year. Condo prices were down slightly month-over-month, dipping by 0.6 percent.
“There is a lot of pent-up demand for a generation that is aging and looking to downsize without sacrificing comfort,” says Tim Anderson, president of Northfield-based Focus Development. “Many of these downsizers end up moving to the city to find the high-quality home they are looking for, but for those who don’t want to move away from their friends and family, a luxury suburban option is in high demand.”
Lake Forest broker Andra O’Neill of @properties says the city is doing well, dealing with low inventory levels and high demand. “There are a number of younger families that enjoy the urban appeal and would like to stay here if they can afford it,” she says. “It is often about proximity to the city, to towns closer to the city seem to have more activity.”
But she also credits the expansion of companies in the north and northwest suburbs as draws for homebuyers to those areas.
“Caterpillar is a great example of this, as they just announced their move to Deerfield and will bring a number of buyers to Lake County.”
Luxury in the suburbs
While this is all certainly good news for Chicagoland housing markets, the luxury segment is another animal. In some Chicago suburbs, like Naperville and Burr Ridge, luxury home inventories became bloated in 2015 and into 2016, resulting in months’ supply of over six months. Indeed, the most recent RE/MAX Northern Illinois quarterly luxury market analysis shows that market times for homes $1 million and up had increased by the end of 2016, a 22 percent jump from 2015.
Christie Baines, an agent with Jameson Sotheby’s International Realty in Barrington, sees the mid-range and lower range of suburban luxury real estate as performing well, while acknowledging that sales are still slow for homes priced in the upper range above $1.5 million.
“We have a cross-section of listings running from mid-range all the way up to upper range,” Baines says. “The upper range is still a little sluggish. The mid-range at just under $1 million seems to have hit its stride. The homes that are priced over $1.5 million are still struggling through lack of showings and lack of buyers.”
Kipp Blackburn, an agent with CONLON/Christie’s International Real Estate, says that among suburban markets, there are a couple of areas showing substantial improvement, in particular Glenview, Glencoe and Winnetka. Blackburn references figures from his own year-over-year analysis of March 2017 MLS stats, using a marketing data tool called Infosparks that he accesses via the MLS platform connectMLS.
“In Glenview the median price is up 13 percent despite an increase in market time of 9 percent. Supply is up 32 percent, but contracts are up 56 percent year-over-year,” he says. “Glencoe closed sales are up 22 percent with an increase in median sales price of 12 percent, despite an increase in supply of homes. Sales activity is way up in Winnetka with 32 percent more sales and 25 percent more listings under contract. Supply is down 18 percent, but the median sales price is only up 1 percent year-over-year.”
O’Neill says there is a good amount of inventory and a range of options for buyers to choose from in the suburbs. “The best quality properties that are priced right are selling. Buyers prefer quality and homes that are ‘done’ versus bigger homes with more square footage and more land.”
The state of the city
Is that the case in the city? Kipp Blackburn sees year-over-year growth in the region as steady, though there is room for improvement. Blackburn notes that in the city, contracts are down 15 percent and closings are down 20 percent due to supply being up 22 percent over March of 2016. Even so, the median sales price is stable and growth in several suburban areas looks promising.
Illinois Realtors reports that home sales in Chicago increased by more than 15 percent year-over-year in March and that the median prices was $295,000, up 9.7 percent from the $269,000 median price during the same period in 2016.
Luxury building continues in the city at a breakneck pace, though some neighborhoods have become saturated with high-end property. In a March 2017 article for Crain’s, Lincoln Park, Lakeview and Lincoln Square were all identified as neighborhoods experiencing “luxury home logjams” with so many luxury listings that prices are beginning to fall.
The RE/MAX Luxury Report on Metro Chicago Real Estate also shows that the luxury market grew through 2016, though the growth was somewhat modest. According to the report, 2,423 luxury units were sold in the Chicago area last year, good for a 3 percent increase over 2015. The report, which tallies sales of homes priced at $1 million and more in Cook, DuPage, Kane, Kendall, Lake, McHenry and Will counties, also indicates that these properties are spending more time on the market and that prices are down somewhat.
“After what we saw in 2013, 2014 and 2015, I think 2016 was a bit of a disappointment to most people,” Baines says. “Our overall sales statistics were very good, but it definitely wasn’t peak or what we anticipated. We had goals that were much higher than we probably could have accomplished for 2016. I think the election had a big influence on that. People were very unsure and just waiting to see what would happen.”
The overall inventory of homes in Chicagoland priced at $1 million and more grew by 23 percent, leading buyers to take more time to make decisions and properties staying on the market longer. The length of time it took sellers to find a buyer grew by 22 percent from 2015 to 2016, increasing from 135 to 165 days.
Blackburn, who works out of CONLON/Christie’s Winnetka office but has listings in the city and throughout the region, says that activity is robust in the $1 million to $2 million range and that sellers are consistently getting 90 percent to 95 percent of their list price, even as those homes take longer to sell.
“The average market time is up significantly over March of 2016 at around 6 months,” Blackburn says. “It’s stable regionally and down by about 11 percent in Winnetka.”
Who’s shopping for luxury homes in the suburbs? Many of the homebuyers Baines sees are either upper-level executives who are transferring into the area for work and settling into a home, or members of the Generation X demographic who have finally decided to move out of the city. The area’s high inventory gives them the time they need to choose the sort of living situation they want.
“For the most part they’ve been in condos down in the city and they’ve held on for a very long time because they like that lifestyle,” Baines says. “We’re seeing about 50 percent of them going to the Village area because they can still have something of that lifestyle, while the other 50 percent are ready to make the move to a bigger property with more acreage or a lifestyle community with amenities.”
What buyers want
Luxury homes themselves are undergoing some changes as tastes shift. Sleeker and more serene interiors are in favor among younger homebuyers, including those who are new to the luxury market. Anderson, whose company is currently developing the Kelmscott Park community in Lake Forest, sees buyers of new luxury construction gravitating toward homes where ample space has been made for entertaining, but without sacrificing finer craft details.
“A newer trend is the importance of amenities,” Anderson says regarding condo development. “Yoga studios, guest suites, car services, concierge-style doormen – luxury buildings offer so much more than just a pool and fitness studio. Focus’s latest luxury rental development in Vernon Hills – The Atworth at Mellody Farm – will feature a game room, yoga studio and a dog spa with an outdoor run.”
Professional Builder recently compiled a list of the 50 features that buyers in the luxury market find most desirable. The list covers everything from exterior touches to fixtures and trim. Finished basements with an open plan, pet accommodations, energy-efficient lighting and smart home technology are all major pluses in the luxury market. Luxury buyers also look for welcoming outdoor spaces, wireless compatibility in every room and a large number of electrical outlets.
Universal designs for bathrooms are popular with high-end buyers who wish to “age in place.” Space, water-conserving fixtures, custom showers and freestanding soaking tubs are all appealing for this type of buyer.
According to Professional Builder, storage areas are becoming more discreet as more buyers opt for closeted pantry areas instead of cabinets. Homebuyers are also looking for open shelving options, flexible spaces that can be used for a wide variety of purposes without creating clutter or compromising an open floor plan.
In terms of materials, quartz countertops – which offer a wider range of different colors at lower prices than granite – have proven popular among high-end homebuyers. Formal dining rooms, meanwhile, are declining in popularity, as buyers opt out of this traditional space in favor of a more open “breakfast room” where casual meals can be enjoyed.
New construction, new challenges
The high number of existing luxury homes available means sellers need to prepare themselves to face the realities of their market.
“It has less to do with what price a seller wants and everything to do with the market they are in,” O’Neill says. “It is about listening to their broker who is in that current market day after day, and is their trusted advisor. I think they [sellers] also need to be willing to put some dollars in to get their home showing ready in terms of painting, staging and decluttering, since how we live in a home is different from how we sell a home.”
On the buyer side, Baines says buyers are often unprepared for the process of purchasing luxury new construction. With existing properties, they can visualize how they will use the space and the changes they want to make. But when it comes to new construction, buyers are often purchasing a home based on drawings and floor plans.
“We have some new developments that have popped up in the Barrington market,” Baines says. “My clientele base has not been leaning toward that, but it’s out there now. For many years it wasn’t even a choice.”
She says there’s a sort of re-education involved in getting buyers used to shopping existing homes to go back to built-to-suit homes in new subdivisions. Adjusting to quicker transaction timelines is one element of that education. “It’s a whole different perspective, and I don’t think people have been interested in understanding that at this point. It’s just starting to be available for them.”
Blackburn, who is seeing families moving from Chicago to the North Shore driving his market, has found that the existing home inventory gives developers an impetus to provide real value.
“It’s difficult to compete with resale inventory, and this puts pressure on builders of spec homes to keep their costs down,” Blackburn says. “New construction claims a premium on a price per square foot basis.”
While would-be new construction buyers in the suburbs must contend with a scarcity of available units, the builders themselves are faced with finding land where they can put developments. Property is at a premium, and developers are challenged to find locations they can afford without sacrificing the high-end finishes that luxury homebuyers want.
“The cheaper the land acquisition costs are, the more value the builder can pass along to the buyer,” Blackburn says. “They still need to manage construction costs while delivering a product with the fixtures and finishes that will appeal to their target market.”
O’Neill says the supply of new construction in Lake Forest has not had a major impact on her market.
“If it is quality construction and brand new, it is selling well,” O’Neill says. “Since there is still a limited amount of new construction here, it hasn’t played a vital role in affecting our existing home sales. Further down the North Shore, there is more new construction in areas like Wilmette and Winnetka and that is competing more directly with their existing home sales.”
Read the original article at Chicago Agent Magazine