After years of being largely dormant, Bloomington-Normal’s homebuilding industry is back in business.
Bloomington and Normal issued a combined 244 permits for new home construction in 2022. That’s up 51% from the year before, with more building planned for 2023.
It’s one part of the community’s response to a housing shortage that's driven up prices on everything – from rentals to existing homes at a lower price point. A study released by the Economic Development Council last spring showed a 4,300-unit housing shortage in Bloomington-Normal.
New construction typically caters to higher-income buyers. But even they are facing some sticker shock. The average price for a newly built home in Bloomington-Normal climbed to $385,138 in 2022, up 14% from the year before, according to year-end numbers from the Mid-Illinois Realtors Association.
Cost of materials are a big factor. The cost of lumber has come down substantially from pandemic peaks, but prices remain elevated for other commodities, said Bob Brady, president and project manager with Keystone Homes in Bloomington.
“For example, on a new construction home we might have been at $12,000 for heating and cooling. Now we’re at $18,000,” Brady said. “Same with plumbing. PVC, copper, all the things that go into roughing in the home, and your fixtures and faucets have all gone up substantially.”
Brady said the tight labor market is another limiter.
“The trades in homebuilding is a fantastic industry, and we need more people in the trades. Because it’s a very, very respectful – and can be a very profitable – and satisfying industry to be in,” Brady said.
Earlier in his career, Brady built high-volume homes with his brothers, Ed and Bill, following their father into the business. Bob and his wife and co-owner, Lynda, started Keystone in 2011. They’re a custom homebuilder, doing 10 to 15 homes each year, mostly in central Illinois.
“I like working with people,” Brady said. “Back in the day, when I was doing 150 or 170 homes a year, I never met the people. And that was the goal for Lynda and I when we got into his business, is that we really wanted to sit back and reconnect with the people.”
Spec homes and interest rates
The rebound of the Bloomington-Normal market includes the return of “speculative” (or spec) homebuilding. That’s when a builder builds a house without a buyer 100% secured, as opposed to a customer’s personalized order.
“The issue that we have with speculative homes is that people, until they really do the research and actually have boots on the ground in homes that are existing, it’s hard for them to fathom the cost. It’s hard for us at times to look at what we’re putting up and what the cost is,” Brady said. “We’ve got a house that used to be $380,000 to $400,000 – and it’s now $480,000. And that’s hard for people to grasp in this market, particularly if they’re from this area. Because we just haven’t seen this type of price increase. And it’s not like the builders are going to be retiring after this rush, because we’re not. It’s just that the prices have gone up.”
Interest rates are another pressure point.
For someone buying a $450,000 home, jumping from a 3% to 7% interest rate would add about $1,000 a month to the mortgage, said Brady.
“When the feds started raising mortgage rates, we had a slowdown,” Brady said. “But now reality is setting back in – that there’s very limited inventory out there. For homes $600,000 and under, we have under two months of supply. And $600,000 to $1 million, it’s a 3-4 month supply. That’s very, very healthy from a seller and builder’s market. So prospecting has picked up quite a bit lately.”
2023 is shaping up to be a busy year for homebuilding too. One notable example: Construction is set to begin this spring on the new Carden Springs housing development in north Normal, with nearly 500 new apartments and townhouses.
Normal City Manager Pam Reece says the town has 1,600 to 1,700 lots currently platted and ready to build on – or lots that soon will be.
“That’s a big number. The issue will be when the developer feels like they can get the materials – because there’s been a materials shortage – and when the interest rates are right, and how all of that works out for the occupant. So there’s lots of pieces to that formula,” Reece said on WGLT’s Sound Ideas. “The best we can do as a municipality is to position developers and builders to be ready to go.”
