Housing slump impacts local developers

January 17, 2008 3:56:37 PM PST
Here in the Chicago area, developers and home builders fear the worst may be yet to come. Kimball Hill Homes, which has been around since 1939 and built many of the homes you find in the northwestern suburbs, lost $221 million last year and has "substantial doubts" about its ability to stay afloat.

It's the cash crunch developers always fear, and some are hoping to ride out the economic storm that's upon us.

If you wander by Jackson and Jefferson in the Loop, you'll see probably the biggest crane you've ever seen in your life. Alan Lev is adding eleven stories to the century-old warehouse and turning it into a hip place to live.

"(Whether) we're in a recession, we're out of a recession, the downturn in the housing market is going to last two months, 10 months, 20 months. No one has a crystal ball," said Lev, president of Belgravia Group.

Lev is also the incoming president of the Homebuilders' Association of Greater Chicago, and he knows about the perils facing Kimball Hill and other developers such as Neumann Homes, which filed for bankruptcy last fall.

"I think in some areas there were too many units being built, and we are now seeing that there are some developers that are not going to weather the current storm. And there's more inventory in some places that the market can't absorb, and it's going to burn off," said Lev.

You can see the inventory around Chicago. The entrepreneurs behind developments like them face intensifying challenges: the summer's credit crunch, which has lenders being very picky about who they give money to, and falling stock prices, which make investors jittery, and a sharp lack of confidence in the economy -- which by itself can tilt the United States into a recession.

Federal Reserve Chairman Ben Bernanke said Thursday it'll take a combination of fiscal stimulus plus monetary action.

It's action that one economist says is needed in Chicago, where the last economic slowdown was really a "recessionette."

"These policies take time to have their full effect, so just because you get money to people within a year doesn't' mean its effects happen within a year because people take time to do their spending in advance, especially if they are having trouble borrowing," said University of Illinois-Chicago economist Helen Roberts.

"The challenge is sales, really. "When there is so much negative news on a daily basis, it makes it more difficult to get people to buy a unit," said Lev.

Congressional aides working on the stimulus package say there could be more money for food stamp recipients and the unemployed, as well as tax rebates and cuts.

One official said President Bush is not pushing for a permanent extension of his 2001 and 2003 tax cuts on this deal -- thus removing an issue the Democrats don't like -- which means a greater chance for Congress to get help on its way.