”Have a good weekend,” said Gene Albert.
It was Tuesday.
”Hey, things are a little bit slow,” he laughed. ”Tuesday becomes Friday.”
Albert, a northwest suburban home builder still busy with several projects, was joking.
But only just. The slump in new home construction that has hit much of the nation over the last several months has begun to affect the Chicago area, causing many area builders to revise their business forecasts, change sales strategies, offer special buyer incentives, seek new markets and, in the case of some smaller builders, shift their focus from new construction to remodeling.
Locally, the downturn is linked primarily to consumer confidence rather than interest rates, which have been holding around 10 percent for 30-year fixed-rate mortgages, a level that has been deemed acceptable by consumers.
Builder after builder tells the same story of customers interested in buying houses but spooked by the uncertain economy and the Persian Gulf crisis.
”It`s difficult for people to make a major buying decision on a home if they feel uncertain about their own financial future,” said William Maybrook, vice president of Lexington Homes, the area`s largest locally based home builder. ”The demand is there, but people are looking for some positive reason to buy.”
The consumer jitters have caused builders to slow down construction. Building permits for new single-family and multifamily homes in the Chicago area dropped 18 percent in August from a year earlier, according to figures compiled by Bell Federal, the second straight month a double-digit drop in permits was recorded.
Nationally, sales of new homes declined in August for the sixth straight month and in the first eight months of 1990 were down 13.6 percent from the year-earlier period, according to the Commerce Department.
Whether these figures constitute a building recession depends on individual perspective. Though there are exceptions, larger production builders in the Chicago area tend to soft-pedal the downturn while smaller, custom builders take a much more pessimistic view.
The key reason for this difference is that the major blow to the local industry has been in the upscale housing sector, and custom builders stuck with $500,000 or $1 million homes built ”on spec” that they expected would sell as they did in the mid-1980s are hurting badly.
”To put up a spec home now is suicide,” said one small-scale Naperville builder who has temporarily switched from building homes to remodeling and declined to be identified because he didn`t want the fact known.
”It will take six to nine months to sell a house if you`re lucky, and the interest (on money borrowed for construction) will just kill you,” he said. ”It`s a dangerous time to be building homes.”
If the larger builders are less apprehensive, they are hardly euphoric. Maybrook said Lexington has changed its sales forecast for its current fiscal year ending next March 31 to less than 1,000 homes from 1,200.
David Hill, president of Kimball Hill, one of the area`s 10 largest locally based builders, said the company has changed its operating plan three times since July and has deferred five projects that were expected to start next year.
”We planned to grow . . . next year as we did this year,” said Hill, noting that the company expected 750 to 800 sales in 1990, up about 50 percent from 1989. ”Now we`re talking about dropping 250 homes from our program. That`s a major adjustment.”
At the same time that they are easing back on their business forecasts, many builders are shifting their emphasis to new, lower-priced markets.
The most radical shift is being undertaken by Lexington, which has applied in joint ventures with community groups to build 40 single-family homes in the Lawndale community on Chicago`s West Side and 40 in the Southwest Side Pilsen area under the Daley administration`s New Homes for Chicago program.
That program is designed to use city subsidies to make possible construction of affordable homes in areas where there has been little or no new residential construction.
For the first year of the program, the city has budgeted almost $3 million for construction starting next spring of up to 200 homes, each city-subsidized at up to $20,000 and selling for $55,000 to $85,000. The Department of Housing is reviewing some two dozen proposals, some from major developers.
If Lexington`s proposal, which calls for homes selling at $65,000 to $70,000, is approved, it will mark the first time in its 17 years that the Arlington Heights-based builder has put its name on a Chicago residential project.
”The spark for our interest was the fact that we see more difficulty in building homes in the suburbs and we want to spread our risk,” Maybrook said. The city program also has drawn proposals from another suburban-oriented builder, Northfield-based Home by Hemphill, and at least two Chicago companies that have recently been concentrating on the luxury market, Horwitz Matthews and Thrush Construction.
Most other big suburban builders, while not seeking diversification as aggressively as Lexington, are refocusing their attentions on their lower-priced homes.
”We`re putting less emphasis on the higher-priced houses because they`re selling more slowly,” said Richard Brown, president of Cambridge Homes, another of the 10 largest locally based builders. Brown said close to half of Cambridge`s homes are targeted to first-time buyers this year, up from 30 percent two years ago.
Hoffman Homes, another top 10 local builder, which had been emphasizing upscale projects, has increased its offerings in what it considers the ”more affordable” range – $120,000 to $180,000 – to about one-third of its product this year, said Hoffman president Norman Hassinger.
”The upper end has been generally the softest segment,” said Hassinger. ”Sales have not been what we had hoped for. That`s generally the case for most builders in the $300,000-plus range.”
He said problems were greatest in his Bloomfield Club project in west suburban Bloomingdale, where he has single-family homes in the $300,000 to $400,000 range. To stimulate activity there, he is selling lots to be built on later.
But he added that the moveup buyers can still be found in certain areas, noting that late last spring he sold out a Schaumburg project in 11 weeks, getting contracts on 75 homes at an average price of $253,000.
Hassinger said he is taking a cautious approach toward land acquisition, but will still consider ”trophy locations” for upscale developments such as the former Augustana Hospital property in Chicago`s Lincoln Park neighborhood, where he plans a mixed-use residential and retail project.
The builders such as Brown and Hassinger who have been changing their product mix to meet the new circumstances are those who foresaw the end of the `80s boom a couple of years ago.
”You couldn`t expect things to last forever,” said Hassinger. ”We started about two years ago to develop new programs for more affordable homes.”
Albert, president of Hawthorn Estates Inc. and Albert Enterprises, who has until recently concentrated on building homes costing $500,000 to $1 million in Long Grove, was another who anticipated the current downturn.
”We made land acquisitions in McHenry County two years ago when we saw the marketplace fill out in the upper range,” he said. ”By the time we had subdivided the land, 24 months had passed and we saw we had guessed right.”
One of Albert`s two new midpriced projects is a 166-unit development near the city of McHenry, where houses on one-acre lots cost $220,000 to $300,000. The other is in Spring Grove, near the Wisconsin border, and is designed for 77 units with prices starting at $175,000. Lots are also for sale in both projects.
In addition, he has recently acquired more property near McHenry for a project with prices under $200,000.
”We`re not abandoning the upper bracket, but we can`t concentrate in that area any longer because the market has been overplayed,” said Albert, who has been building in the northwest suburbs for 17 years.
”The bigger high-end builders who want to be around for the next 10 years have got to diversify,” he said. ”I don`t think they can maintain themselves in the upper bracket and do enough business to keep their sales staffs intact.”
And another luxury builder, Fiduccia & Co. of Barrington, has adopted the same policy. Fiduccia, which has specialized in high-end custom homes in the Barrington area, is working on its first midpriced development, a project of 75 homes starting in the mid-$200,000s in northwest suburban Cary.
Some builders are offering substantial incentives to spark buyer interest and encourage them to overcome their economic anxieties.
Rolling Meadows-based Sundance Homes is offering $15,000 worth of upgrades such as air conditioning, fireplaces and extra baths on 14 homes priced from $130,000 to $250,000 at four suburban subdivisions, and will pay up to three points on the same units. The offer is good through the end of the year.
Burkart & Oehlerking, a Streamwood-based builder, is offering a similar $15,000 ”giveaway package” on 11 homes in subdivisions in Crystal Lake and Lake in the Hills.
One area that may be faring better in the current downturn is the southern suburbs, where the spurt of high-priced home building in the middle and late 1980s wasn`t quite as frenzied as in the northern and western suburbs.
Eamon Malone, president of Malone and Moloney, an Orland Park firm, said he`ll build about 35 semi-custom homes costing around $200,000 this year, the same as last year, and hasn`t revised his outlook for 1991.
”Things are a little slower and it`s a little harder to sell,” he said. ”We`ve been kind of spoiled for the last couple of years because there`s been such a demand.
”I would call it a tapering off rather than a recession. In the recession of 1979, `80, `81, to sell five houses a year would have been good. So you couldn`t call this a recession.”
