A Rough Start

With prices higher than ever, new-home buyers
must be smart to get a start

by Barry Pearce

When it comes to new construction, what defines a starter home? Some might conceive of a kind of hierarchy of housing types, with condos as first-time dwellings, townhouses as a step up and single-family houses as the peak. But try to find a decent new condo in Lakeview for less than $200,000, and that way of thinking falls apart. This is to say nothing of the new condo buildings where base prices start at $600,000 or more. Not exactly starter material.

Should price then be the defining element of a starter home? Again, that approach fails when $300,000 seems to be the low end, the foot-in-the-door price, in much of Lincoln Park. In a couple of current Lincoln Park projects, $390,000 buys you a moderately sized two-bedroom condo. Perhaps, then, the whole idea of new homes for first-time buyers is an oxymoron. Maybe resales are the true starter homes. But plenty of first-time buyers want new construction and, believe it or not, are able to find homes that meet their budgets.

The point is that one person’s starter home is another’s dream house. A couple who have been renting in Lakeview for eight years and are determined to stay in the neighborhood might realistically aim for a price of $250,000 to purchase a new condo, hoping to step up later to a larger unit or a single-family. In other neighborhoods, that scenario might seem insane, especially when you can buy a brand new single-family home on the South Side with a garage and yard for less money.

What is common to a variety of income levels and locations, is the fact that so many buyers who want something brand new have trouble making the transition from renter to owner. If that’s the case for you, consider this: it will not get any easier. Interest rates, though a little volatile right now, are still at historically low levels and while it’s anyone’s guess how much they might go up during the next year, they certainly will not go much lower. For buyers of new construction, there is a large inventory of product available, probably more in the city market than ever before. And while prices are not low, competition among builders is intense, which means developers are more likely to go an extra yard or two on finishes and amenities, possibly even throw in some extras, to get your business.

Start shopping

The most important thing in finding the starter home that’s right for you is to shop extensively. Shop long before you intend to buy and check out projects that are both a little above and below your price range. Having a strong sense of the market, of what $150,000 will buy you, what you can get for $180,000 and how $250,000 translates into a new home right now in the locations that interest you, is vital. It’s equally important that you have a solid sense of what you can afford, both in terms of a down payment and monthly mortgage payments before you begin shopping.

If you think you can’t afford a home, it’s possible that you only need to change your definition to be in the market. Brand new detached single-family houses are out of reach for many, and in prime north lakefront neighborhoods, they’re difficult to find. But your first home doesn’t have to be the ideal one; it can allow you to build equity until you decide to trade up for something more.

New condominiums, especially in prime neighborhoods, are non-starters for many buyers with tight budgets. But apartment buildings converting to condominiums and offering units essentially “as is” offer more competitive pricing - and near immediate delivery. The Grand Ohio, a nearly 600-unit conversion at 211 E. Ohio has studios that began selling in the $90s, a low price for Streeterville.

Lofts also have become the starter home of choice for thousands of city dwellers during the past few years. They tend to be centrally located and although some are quite pricey, they generally sit at the “affordable” end of the spectrum. Several current loft projects are prime examples.

Metropolis, a new 115-unit loft conversion at 1934 N. Washtenaw, in Humboldt Park, has a starting price of $106,900 for a studio. A one-bedroom unit of 716 square feet costs $148,900, and a two-bedroom one-bath unit is $176,900. A larger two-bedroom two-bath loft sells for $201,900. The project offers both concrete and timber beam units that are true lofts, with exposed beams and ductwork, and ceiling heights of more than 14 feet. The units also have fireplaces, private balconies or patios, GE appliances, hardwood floors in living areas and oversized windows.

The starting price of around $107,000 might not seem low for what is, after all, recycled commercial space, but a quick perusal of current loft projects will show that it’s well below average cost. And don’t let the loft label fool you. About the only part of this project, virtually any loft project these days, being recycled is the brick shell. Everything, from windows and roof to electrical and plumbing systems is entirely new.

The Clinton Complex, 500 S. Clinton, is another loft project with starter prices. At press time, prices ranged from the $130s to the $260s, and most of the units were below $200,000, according to developer Michael Lerner, president of MCZ Development. Standard amenities include fireplaces, hardwood floors and private balconies. Living space ranges from 1,540 square feet on the high end, down to a cozy 680 square feet for the smallest studio units in the project (remember, starter home).

Townhouse anyone?

If condominiums do not appeal to you, townhouses are a consideration. However, they are not the bargain they used to be. A new townhouse ordinance has made it harder for developers to cram large number of units onto small parcels of land. This has resulted in fewer townhome developments and higher prices for the ones that do make it to market.

The townhomes at 5354 N. Damen seem to be at the low end of the market, with starting prices in the $230s. Shakespeare, a 94-unit townhouse development by the Thrush Companies at 4550 S. Woodlawn, has units priced from the $160s to the $330s. They include two or three bedrooms, 1.5 to 2.5 baths, family rooms, attached garages and balconies off the second and third floors.

“We’ve had an incredible response at Shakespeare because it’s the only development in the area where people can purchase a brand new home in a neighborhood setting with green space for under $200,000,” said David Chase, a principal in The Thrush Companies.

The 16-unit townhouse project at 4915 N. Ravenswood offers units starting in the $290s. The development, close to the Metra railroad tracks but in a location that has become popular recently, has units with two or three bedrooms and three baths. Smith Park Commons, 2455 W. Ohio, has townhomes priced in the $260s. They include two or three bedrooms, fireplaces, private roof decks, granite kitchens and marble master baths in a fairly urban location.

Townhouses have remained popular despite the city’s tighter restrictions on their construction. And although home shoppers may feel sticker shock at some townhouse projects, even the high-end ones tend to offer good value.

“They’ve become more expensive, but they’re still substantially cheaper per square foot than a condo or single-family house,” Huzenis says. “We’re selling at about $160 a square foot at Greenview on the Park. You can’t buy a condo there for under $220 a square foot and many single-family homes are at $250 or $300 a foot. When you really analyze the numbers, (townhouses) are the real bargain in the market.”

Which is not to say that they’re cheap. Even in outlying neighborhoods, it has become difficult to find a new townhouse in Chicago for less than $225,000. Prices on townhomes at the new Wellington Park, 1701 W. Wellington, start around $400,000 and go up to the $520s. Townhouses at Kinzie Park, 400 W. Hubbard, started in the half a million dollar range and go up to $960,000 for centrally located riverfront units.

But as Huzenis points out, foot by foot, townhouses are still the most affordable option. They allow buyers more space and privacy than condominiums, but without the maintenance headaches and high price tags of single-family houses.

Location, location, location

Single-family homes take up more space than either townhomes or condos and are by their nature less efficient from a builder’s perspective. In most neighborhoods, then, it makes sense for builders to stack these units as close to the high end of the spectrum as they can. Deals do exist, but they are exceedingly rare.

Through the city’s New Homes for Chicago program, which subsidizes the cost of building single-family homes, builders periodically offer below-market pricing on units.

Plaisance Place is a joint venture between The Thrush Companies and the Woodlawn Preservation & Investment Corp., a community group. It encompasses four gated communities, which total 42 single-family homes and nine townhouses.

Phase IV of the development features 13 single-family houses designed by Phillip Kupritz and Associates. Base prices range from the $230s to the $260s for homes with about 2,600 to 2,970 square feet, three or four bedrooms and 2.5 baths. It’s fair to say that no comparable North Side deal exists, which brings us to the most important factor not only in starter homes but in all real estate – location.

New construction in popular well established neighborhoods obviously is more expensive than new houses in “emerging” neighborhoods. And the closer to the lake you are, the higher the prices get. The Northwest Side offers much lower prices than neighborhoods to the east, but until recently not much has been available there. Now, a fair number of conversions and even some new construction projects are popping up all over the Northwest Side.

A conversion at 2036 N. Humboldt, in Humboldt Park, is listed with Jameson Realty Group and has prices ranging from the low $100s to the $120s for 13 two-bedroom one-bath units. Plaisance Place and Shakespeare are far enough from the South Loop to have lower prices, though they’re just a short car ride from downtown. Much of the South Side, like the Northwest Side, offers starter prices and is seeing more construction than ever before. Within the central area, projects in “new” corridors, i.e. formerly industrial and still a little under-populated, tend to have lower prices. This is true of the Clinton Complex, a loft conversion which is being marketed as part of the “South Branch District” - a neighborhood that so far doesn’t exist.