The Q2 2008 Residential Benchmark Report from Appraisal Research Counselors (ARC) serves up a variety of generally downbeat news for the downtown Chicago new construction market.
We’ll bring you the bad news, and the few bright spots, over the next week or two. One negative sign, according to ARC, is a sharp increase in contract cancellations:
Typically, contract cancellation has been caused by some life-change issues (death, divorce, etc.) although it is now increasingly due to financial reasons: job loss, financial problems, lack of price appreciation, and most recently due to the inability of the buyers to obtain financing. This is impacting all price points and is not just a first-time homebuyer issue…
Buildings which would typically have a less than 5% cancellation rate are now seeing an increase, with a 10% cancellation rate now considered to be modest. Some developers are reporting higher cancellations by investors who are no longer motivated by price appreciation. Overall, buildings with significant investor sales or buildings which are very generic tend to be at greater risk of contract fallout than buildings with special location or view amenities.
The risk of contract fallout will continue, as record numbers of units are delivered in a market at the same time as pricing is generally flat and the rental market is showing signs of softness.