The money is in the bank. Or the baby is on the way. Or, for whatever reason, you`ve decided to move out of that cozy apartment and into the vaunted realm of the landed class.
It`s time to buy your first home, but what are you looking for? More to the point, what can you afford?
New construction, you say. A new, energy-efficient home with great appliances, new carpet and no worries about inheriting someone else`s problems. You`ll get low maintenance and high satisfaction in one of the suburbs` newest developments. What could be better?
A great vision, but it soon fades when you remember that while the money may be in the bank, it`s not a fortune. Besides, who needs trees in your front yard that look like twigs? Shouldn`t you be thinking about an ”established” neighborhood where the housing has character (meaning it probably could use some work) and is more affordable?
A new house might be nice, but is resale housing a better buy?
It`s the first choice faced by many buyers who climb into the jungle of variable interest rates, smiling developers, reassuring agents and
interminable confusion: Where will we get the best bang for our buck, in new or in resale housing? And then, where will we reap the most appreciation in value?
A matter of taste
”Most times it`s like asking someone what flavor they like, chocolate or vanilla,” says David Robbin, president of the North Shore Board of Realtors. ”That`s because the first answer one gets is often dependent on so many variables, most of which revolve around taste. The hard answers, the money answers, are simpler usually. But not much.”
Robbins, like most who are bluntly asked the question, hedges his bet. The economic facts-that for comparable square footage, new housing in the Chicago area is generally priced from 18 to 20 percent higher than resale-are easily mitigated, they say. Determining the best value often goes beyond the naked price tag.
The first place new entrants to the home market often look are new developments. The pristine property and amenities found in most new construction are a seductive lure.
But those homes were probably built with a different customer in mind.
”There is a bias of mind that the role of new construction is to provide affordable housing for first-time buyers,” says Tracy Cross, a housing analyst based in Northfield. ”Actually, there is a filtering process at work. Most buyers move from their first home, a resale, into the new homes as they experience upward movement.
”For most first-time home buyers, the decision often depends on taste and location desire,” Cross says. ”In many instances, the location element is closely tied to the purchasing decision. If the buyers are of modest means, the resale home is a better option because of the price differential. For them it is a matter of economics.”
Paying the price
Indeed, for many it is. The median price of a new, single-family production home in the Chicago area, of about 2,150 square feet, is about $185,000, Cross says. Meanwhile, the median resale price is $109,300, according to the National Association of Realtors` most recent statistics.
And although many developers can offer financing deals to get cash-poor buyers into their new products, a lot of home seekers wind up firmly in the resale market.
Resale housing prices skyrocketed across the country during most of the 1980s, most notably on both coasts; the market for resale housing in the Chicago area has been more stable. As a result, it`s consistently the most affordable option for first-time buyers, despite the sometimes high additional maintenance costs found in resale homes.
”This area has been much more stable and the metropolitan area hasn`t really boomed, either,” says Edwin Mills, a professor of real estate at Northwestern University`s Kellogg Graduate School of Management. ”The prices have been going up ahead of the rate of inflation, but the prices also are more stable and have avoided wild spurts or fluctuation.
”It`s difficult to pinpoint why this has occurred, but it`s good news for most looking in the marketplace.
”In terms of the Chicago metropolitan area, I would still put my best bets, in terms of capital gains, on housing on the North Shore,” Mills says. ”Anything north of Evanston, and even parts there, show long-term growth. Just behind that, I look to Schaumburg and points west.
”It`s a coin toss between the two.”
Heading north
Restaurateur David Glatt and his wife, Ellen, chose the northern route. The couple first explored new developments on the outskirts of Deerfield early last year, but they eventually decided to buy a five-bedroom, contemporary-style resale home in an established neighborhood in southwest Highland Park.
”I felt that by the time we added the extras (to the new house), it would have gone from $330,000 to more than $400,000 pretty easily,” Glatt says. ”And because it was in a new area, the house wasn`t landscaped too well, which meant more money and time.
”I`m sure we started like everyone else-we wanted everything, then subtracted the things we couldn`t afford and wound up buying an older house. Since we bought it, we`ve done some work, about $20,000 worth. But I`m much fonder of the house as it stands with the additional work than I would have been if we had moved into that particular new house.”
But a North Shore resale home (say in Winnetka, where the average home-sale transaction between October 1988 and October 1989 topped $380,000) is pie in the sky for many. In case you don`t win the lottery, there are other avenues to be explored-and one is to look for a house that, while lower priced, figures to appreciate more quickly than some of the area`s new housing.
The growth and increase in property values in many communities that have reached their growth limits have carried over to neighboring towns and villages. These ”stepchild” communities often make for good values, and all but guaranteed land-value appreciation.
Suburbs such as Hinsdale, Oak Brook and others on the Du Page-Cook County line have nearly peaked, analysts say. As a result, towns like Lombard have benefited from the gap, and the resale market there has become attractive.
”In that regard, it`s the lack of availability of land (in places like Hinsdale) that has forced the new housing market high and provides a window for resale to become affordable,” Cross says.
There is also a growing price disparity within some communities. Such price disparities exist in Schaumburg, where the average resale price for a single-family home is around $140,000, while new housing runs about $220,000. In this situation, the resale housing is by far the better buy.
Solving the puzzle
But economics is only a piece of the puzzle. For many, there are secondary concerns-schools, proximity to work and family, neighborhood demographics-that are closely tied to the new and resale markets. Many times these are the factors that play the pivotal role in the purchasing decision.
”We went first to new housing developments, but there were either problems with construction or the house was on a septic tank or they were too far out in the country,” says Karyl DeGenova, who, along with her husband, Keith, recently bought a 4-year-old home in Mokena, in northeast Will County. The couple began their search near their Willowbrook apartment, but found they were priced out of the market. They were forced to move farther from the city, where they both work, so travel suddenly became the key issue.
”It seemed that the newer developments were farther out from the train,” she says. ”We both commute, and the house we found was closer to transportation. We also looked at the schools and the fact that it was an older neighborhood, which is what we wanted. Add the fact that it`s located in a good school district, and it was easy to decide.
”We plan on staying there for a good long time.”
In June, the DeGenovas will move into their $126,000, three-bedroom home, which is nestled in a community of older homes and newer condominiums. Similar neighborhoods in the western suburbs, where homes are from 5 to 15 years old and may be mixed among town homes and condominiums, have recently become among the most attractive properties in the area, says Cross.
The real bargains
”The best buys in Cook County are in the Schaumburg town home and condominium sector, bar none,” he says.
”The same can be said for Buffalo Grove-an example where most of the housing stock was late 1950s or early 1960s. When new housing took off in the early 1980s, those (resale) homes became better investments virtually overnight.”
Other communities where the resale market is most affordable, compared with new construction in those areas, include Gurnee, Grayslake and Lindenhurst, all in Lake County. In those towns, intense spillover and restrictive growth policies in neighboring villages have forced land values up while the price of the average resale home has remained more constant.
”It`s like a jigsaw puzzle for most home buyers,” Robbins says.
”Putting all the pieces together can be frustrating almost to madness. But by evaluating the options, knowing what you can and can`t do, then exploring the regions that best suit your needs, a choice can be made and the best value can be found.”
In most cases for first-time buyers, that value seems to be in the resale market-and in the Chicago area, that`s especially true in the west and northwest suburbs. Though these homes and townhouses may not come equipped with the latest appliances and brand-new streets, their combination of reasonable price, steady appreciation, better-developed local resources, established schools and community services combine to give first-timers the bang their buck deserves.
