From Sunday’s Chicago Tribune:

THE MARKET

Suburban boom doesn't want to quit

Wayne Faulkner, Real Estate editor
Published November 13, 2005

The housing boom has peaked and things will ease off from here on, right?

Not necessarily, according to a report on the Chicago area's new construction market by Metrostudy, a housing research and consulting company.

Housing starts in the first nine months of 2005 are up 6.3 percent from a year earlier, to an annual rate of 34,000, according to the report -- the highest since the company started surveying the Chicago market in 1990 and a "complete turnaround" from the 7 percent decline in the first quarter.

Forget the city and the downtown condo boom. The figures cover houses, town homes and duplexes -- not condos. So, they principally reflect home building in the suburbs.

Why is this happening as mortgage interest rates rise and the rate of home appreciation around the country is expected to slow?

Thank job growth and still relatively low interest rates, according to Chris Huecksteadt, manager of the company's Chicago division in Schaumburg.

The annual rate of job growth in the Chicago area -- the study covers an area from Kenosha to Gary to Rockford to Morris -- rose to 50,500 by the end of the third quarter from around 30,000 since the first of the year, Huecksteadt said in an interview, calling it "a little bit of a surprise." (The job figures come from the Illinois Department of Employment Security.)

And "we could equal or top" the housing figures in 2006 "if interest rates don't skyrocket and job growth continues" at an annual rate of 50,000 to 60,000, he said.

The figures also reflect a push ever outward of the Chicago suburbs and head-on into high gasoline prices. But gas is not affecting housing yet, Huecksteadt said, because the jobs are being added in places such as Joliet , Aurora, Elgin and Morris -- within a tolerable distance of where most of the homes are being built.

So builders continue to look for affordable land in Kendall, Kane and Will Counties and along the Interstate Highway 88 corridor; and in McHenry and DeKalb Counties , Huecksteadt said. Some are looking in southern and far northwestern Cook County , he added.

We're not running out of land, either. There was an inventory of 48,688 lots at the end of the third quarter, the study said. Those are vacant, developed lots ready for a home to be built on, Huecksteadt explained.

That's a lot of lots. But with housing starts at an annual rate of more than 34,000, it would take about 18 months to deplete that supply, Huecksteadt said. There are plenty more lots where those came from, he said, with 200,000 in the pipeline -- that is, planned or going through the municipal approval process. But he sees the supply of lots remaining at 16 to 18 months for the next few years.

Can this level of home building be sustained? Some observers are worried that the national, publicly traded home building companies -- highly represented in Chicago -- are building for their shareholders, trying to show growth.
Huecksteadt said, however, that Chicago is not a spec-home market. "We build as we sell," he said. So, home supplies are "being absorbed at a normal rate."

To put the Chicago market into perspective: It doesn't hold a candle to Atlanta, with more than 60,000 starts. (Talk about sprawl; you practically need a plane to span the "Atlanta area.") But it does rank No. 6.

Meanwhile, back in the city

Living in a sea of high-rises -- some with views of Lake Michigan -- is attractive to many, especially as seen from suburbs that are full of peace and quiet (boredom with the kids gone?) and lots of home maintenance.

But are you sure you want to make the leap from a town or city neighborhood to a new development downtown?
If the giant Lake Shore East development along Lake Shore Drive and between the Chicago River and Randolph Street is on your list of prospective homes, there's a way to try out the 'hood before you buy.

The new Shoreham rental high-rise in Lake Shore East has a novel offering. Sign a lease there and you can apply 25 percent of your monthly rent toward a rent-buy program that can earn you up to 2.5 percent of equity in any Lake Shore East condominium building, according to Robin Berger, executive vice president of NNP Residential & Development, co-developer with Magellan Development of Lake Shore East.

It is, of course, also an incentive to fill up the Shoreham -- a cross-marketing tool, Berger said.
" People are coming into the leasing office and saying `I can try out this neighborhood.'" Berger said. "We're seeing [traffic] from the sales and rental side."

It also can be used by people who are waiting for their units to be finished in the development, she said. They can live in Lake Shore East, get used to the neighborhood, and see the progress of their condo.

Berger said it doesn't penalize those who are strictly renters, either. Whether you intend to rent, are thinking about buying or have already bought in Lake Shore East, the rent-buy deal still applies.

In other words, they all pay the same rent, so nothing is lost but possibilities if you don't buy.

The full-service building isn't the low-rent district, though. So you could be getting used to what your mortgage payment would be if you choose to buy a Lake Shore East condo.