Teardowns Return across Metro Chicago Real Estate Market; Builders Bet on Demand for Luxury Homes, RE/MAX Reports
CHICAGO, June 30, 2015 /PRNewswire/ -- Teardowns were a much discussed phenomenon during the housing boom a decade ago in the metro Chicago real estate market. Many older homes were demolished to make way for newer, larger ones. Now, RE/MAX reports teardowns are on the upswing in many sought-after communities.
Construction permits were issued for 2,062 new single-family homes in the Chicago area during the first four months of 2015, the U.S. Census Bureau reports, 54 percent more than during the same period in 2013, with teardowns often paving the way.
In Chicago, several North Side neighborhoods attract significant teardown activity, "because there isn't any vacant land in this area, so if new homes are built, something old must go. Often it will be an older frame home or a two-unit building. Those properties sell for anywhere from $600,000 to $1 million or more depending on location and lot size," reported Deno Jeffries of RE/MAX Exclusive Properties. Through May of this year, 29 new single-family homes were sold in Lake View, Lincoln Park and North Center, with another 66 on the market or under contract.
Another prime area for teardowns is the western suburb of Elmhurst, Ill.
"We're seeing quite a few but with a different twist," said Melissa Somone of RE/MAX 1st, Elmhurst. "In the past, most teardowns were done by the family who would live in the new home. Now it's often a builder who comes in and buys the existing home confident that a new home will find a buyer, and they've been selling well."
Elmhurst currently has nearly 60 new homes listed for sale, and more than 110 have sold there over the last 2½ years, most involving teardowns.
"We've seen more interest in teardowns this year than in the last six years," reported Linda Feinstein of RE/MAX Signature Homes, Hinsdale, Ill.
Teardowns weren't happening in Barrington, Ill., three years ago, according to Paul Wells with RE/MAX of Barrington, but that has changed, especially in the central portion of the village where vacant lots are rare.
"If a new home is a good product and competitively priced, it will sell. Right now there is more demand than supply," he said.
Builders seeking homes to demolish usually follow strict financial guidelines but will make an all-cash purchase if the price is right.
"Every property we've listed this year that is viewed as a potential teardown has generated multiple cash offers from developers," said Jeffries.
Michelle Shoemaker of RE/MAX Villager in Glenview, Ill., said, "we've seen many builders and investors pay cash to buy small ranch homes priced from $300,000 up to $400,000," she said. "For families who want to buy one of those homes to live in, it's difficult to compete."
In Elmhurst, most new homes sell to those purchasing their second or third home. "The prices are challenging for first-time buyers," noted Somone.
The new homes replacing teardowns tend to have common characteristics. Most range from 2,500 to 4,500 square feet, and might include a finished basement, four or five bedrooms, three or more baths, large family room, 9- or 10-foot ceilings and often a three-car garage. The exterior typically is brick or brick and stone, but it can involve stucco or cement-board siding.
"One difference we're seeing is that new homes are about 20 percent smaller than they were a decade ago," said Wells.
Nonetheless, these gleaming new dwellings sport hefty price tags. On Chicago's North Side, reports Jeffries, new homes generally sell for $1.75 million to $3 million. Hinsdale currently has 18 new homes on the market priced from $1.4 million to $1.8 million. In Elmhurst, most new homes sell for $800,000 to $1.2 million, and the range is similar in central Barrington. Naturally, there are more expensive examples, especially where expansive acreage is included.
The high prices for new homes in established neighborhoods reflect the willingness of buyers to pay significantly more per square foot for new construction than for existing homes. Feinstein attributes that to "the personality of today's home buyers. They want what they want and are willing to pay for it rather than working with an existing home and remodeling it to meet their desires," she said.
According to the information collected by RE/MAX, additional advantages that buyers see in this wave of new construction include shorter commute times and the ability to build in their preferred neighborhood. However, all this new construction has a significant impact on the established neighborhoods where it takes place.
"It's a domino effect," said Shoemaker. "Once the teardowns start in an area, they tend to multiply and change the whole character of the neighborhood, but one of the major pluses is that the entire community benefits from the additional property tax revenues that the new homes generate."
SOURCE RE/MAX Northern Illinois
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