Why are fewer new homes being built in Greater Peoria?
Home sales in Greater Peoria are declining, with a dropoff of almost 14% over the first three quarters of this year compared to 2022.
The Peoria Area Association of Realtors says low inventory is largely responsible for the decline, and that a slowdown of new home construction has contributed to that low inventory.
But what do the home builders say? Has new home construction slowed significantly over the past few years? And if so, what factors are contributing to fewer homes being built?
Dave Whitehurst is one of the co-owners of P&W Builders in Peoria. He says the building market has seen its share of ups and downs for many decades.
“We've seen cycles. My dad started this business in 1954. I've been with this business since 19– actually, I went on payroll in ’66, cutting grass – and, you know, we've seen a lot of downturns,” said Whitehurst. “So you see these cycles: Peoria back in the 70s, we had a population of 130,000 people. Then it dropped down to I think somewhere around 104,000 in the 80s, boomed back up to around 120 (thousand) in the 90s/2000s, and down somewhere in the teens now.
“So, to say that the market’s not there, no. It's not like it was during the booms, but it's been pretty relatively – for us, we'll say – steady for the last eight to 10 years.”
Whitehurst admits recovery from the COVID-19 pandemic has been a little slower than desired.
“We did get hit harder than a lot of industries did, because of the fact materials, framing materials, at one point, tripled in price. So to get materials was very difficult,” he said. “Then the biggest problem we have, we’ve actually turned down work because of employment. We cannot find people skilled enough in this trade that don't have a job already. So the biggest problem we're facing right now is not finding work, it's finding people who can do the quality work we need them to do.”
Andrew Braun is the Assistant Director of Planning and Zoning for Peoria County. He says new home construction has trended down for several years now following a peak year of 39 building permits issued in 2017.
“Going back to a couple of years prior to COVID, we really haven't seen that the full rebound,” said Braun. “The availability of land is there, the builders are there, the materials seem to be there. Now we're facing some economic uncertainty, and that's really maybe providing more caution to folks before they invest in that new home.”
Braun says the county has seen a 33% decrease in building permit applications since the onset of the pandemic, but positive signs are emerging.
“Back in 2020, we had 31 new single-family residential building permits issued. In 2021, that number was down to 21 (and) in 2022, that number further reduced to 18,” said Braun. “We have seen a little bit of uptick this year: that number has climbed back to 22 to date. So we anticipate that those numbers – that low 20s to 25 – hopefully is the projections into the next couple of years.”
Terry Ruhland of Plum Creek Builders in Chillicothe says he’s turned down more projects than he's taken in the past year as he transitions into retirement. He says construction expenses are holding down the number of new home projects.
“I think the thing that sums up the market in Peoria is that there is a tremendous pent-up demand, but new construction costs have gotten – since COVID and beyond, and inflation – costs have skyrocketed, and interest rates,” said Ruhland. “So that demand is not being realized, because so many people are being kept out of the market by those other cost factors.”
The national average interest rate for a 30-year fixed mortgage is currently around 7.8%, while the average 15-year fixed rate stands at just over 7%.
Whitehurst agrees interest rates are having the biggest impact on the market, but that's really nothing new.
“Back in the '80s, we were seeing that 17-18% mortgage rates. When the rates got back down to 10%, people were ecstatic to see such low interest rates,” said Whitehurst. “Well, the newer generation is not familiar with 7-8-9-10% money. They've seen through their life mostly, in let's say their adult life, interest rates anywhere from 2-6%. So all of a sudden they see a 7.5-8% mortgage rate, they get kind of sticker shock.”
Sara Decatoire is the executive officer for the Home Builders Association of Illinois. She says the concern over high interest rates is two-fold.
“It’s not only high interest rates for people purchasing homes, but the high interest rates that the builders are experiencing when they're purchasing the materials,” said Decatoire. “They have to take out loans to build the new construction as well.”
Decatoire says the international trade market has driven prices higher on construction materials such as lumber, steel and aluminum. She notes the National Home Builders Association is urging the federal government to negotiate for new softwood lumber agreements with Canada, and resolve the ongoing trade dispute with China.
Decatoire also points out that the slowdown of new home construction is a statewide issue, with Illinois matching the national figure of a 13% drop in single-family home building permits year-to-date through September, compared to 2022.
She says a host of factors are leading to the inventory shortage that’s depressing home sales.
“There's a supply chain issue in the fact that there's not as many people wanting to sell their homes because they've locked in those low interest rates. People are looking at keeping those and not being able to even really afford going to the next step up,” she said. “So going to the next step up is going to be a lot more expensive on top of the fact that their interest rates are going to increase.
“So it's going to be less affordable for those who currently own homes. I guess that's almost a bright light on the new home construction side of it, but I know that some new homes may not be as big because home affordability is so important to the American people and to the industry. So keeping that home affordability is paramount.”
Whitehurst says the Peoria area's affordability is an advantage compared to other parts of the country.
“I think you're seeing some people seeing that Peoria is a bargain,” he said. “So they're coming in from states like California, where a million-dollar house here would be a $10 million house out there. So you're seeing people (decide) it's more affordable in the Midwest.”
That's why Whitehurst believes the Peoria building market isn't quite as weak as some may suggest.
“It's not like it was back in the boom, and like I’ve said, I don't know if we'll ever see a boom again in my lifetime,” said Whitehurst, noting that P&W was building 50-60 homes at a time in the early 2000s. “But I think you'll see a resurgence of homes in younger people's lifetimes in Peoria, Illinois.
“It's still a great community. I've been here all my life, and I have no intention of leaving. So I'll stick around and I hopefully I'm not the one to turn lights off. But I'm here to stay.”