No chill so far this fall for Twin Cities homebuilders, who are raising as many houses as apartments and keeping crews far busier than last year at this time.
This month, builders were issued enough permits to construct 450 single-family houses, 33 percent more than October 2015, the Builders Association of the Twin Cities said Wednesday. Including apartments, 465 permits were issued for October.
“More families are looking to build new single-family homes,” said Meg Jaeger, president of the association. “With all of the right ingredients in place, we expect to see continued growth in that market.”
Multifamily projects, mostly upscale rental apartments, represented fewer than half of all planned units for the month. But the bulk of those units were in a single building called H.Q., a 306-unit apartment building in downtown Minneapolis. The building, which broke ground earlier this month, is being developed by Kraus-Anderson as part of a full-block project that includes a new headquarters for itself, as well as a hotel and a microbrewery.
Twin Cities homebuilders are having one of their best years in more than decade. For the first 10 months of 2016, there has been a 12 percent increase in the number of planned single-family houses in the metro area.
Similar trends can be seen nationwide. On Tuesday, the National Association of Home Builders said that new home sales posted an unexpected 3.1 percent increase during September to a 593,000-unit annual pace. The group said that sales were up in every region except the West.
In the wake of the recession, homebuilders were focused on dumping years’ worth of unsold homes and not creating another backlog. At the current sales pace, there are enough new houses to last 4.8 months, according to the national association. That’s more than double the supply of existing houses, but far fewer than what is typical.
In a statement on the topic, Zillow’s chief economist Svenja Gudell said that while it is tempting to see the data as a sign of strength, the 593,000 sales that happened last month are well below the 800,000 to 1 million sales needed to help create a more healthy balance between buyers and sellers. Gudell said the report was “pretty mediocre.”
She said because buyers still face limited inventory, despite a year-over-year gain, new houses are selling in near-record time. And compared with the 2005 pre-recession peak, new-home inventory is down by more than 50 percent in most regions, including the Midwest. “Those pre-recession highs may have turned out to be too lofty, but right now the market could easily absorb a lot more new homes than it is,” Gudell said.
More are remodeling
In the Twin Cities and other major cities, job growth has exceeded housing construction by a long shot, deepening the shortage of options for entry-level buyers. At the same time, buyers have outnumbered sellers in some parts of the Twin Cities, leaving buyers with few options. That paucity of new and existing houses has been a boon to home remodelers.
Home improvement spending is expected to hit an all-time high next year, according to a report released Tuesday by the Remodeling Futures Program at the Joint Center for Housing Studies of Harvard University, which showed that annual growth in home improvement and repair expenditures will continue to increase, surpassing 8 percent by the second quarter of 2017 before moderating later in the year.
“Homeowner remodeling activity continues to be encouraged by rising home values and tightening for-sale inventories in many markets across the country,” said Chris Herbert, managing director of the Joint Center.
Recent increases in housing construction are also being hailed as a critical hedge against another price bubble. Competition for listings has led to bidding wars and over-ask-prices, raising concerns in several parts of the metro that prices are climbing too quickly.
Few building sites available
In the Twin Cities and beyond, builders and developers are vying for a limited number of buildable lots, putting upward pressure on prices.
A recent NAHB/Wells Fargo Housing Market Index survey showed that 64 percent of homebuilders said the availability of homesites was “low” or “very low.” That was the highest figure since the builders group started tracking the data in 1997.
Mark Gianopulos, regional director of Metrostudy’s Twin Cities market, said that lot shortages come at a time when prospective buyers are becoming more price sensitive.
Since peaking in 2007, lot inventory levels in the metro have fallen 45 percent. In parts of the metro area, the gap in price between an existing home and a newly constructed home has widened to range from $125,000 to $225,000.
“Continued rising construction costs, development costs, and increased regulation could all negatively impact the potential growth in the local housing market,” Gianopulos said.