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Dan Henderson, left, and Frank Bassett worked on a new home Wednesday at Four Seasons at Rush Creek in Maple Grove.

Joel Koyama, Star Tribune

Matt Jones, left, and Mike Engle of Manor Concrete prepped a home for stonework Wednesday at Four Seasons at Rush Creek in Maple Grove.

Joel Koyama, Star Tribune

Housing permits hit roof in Minn. as recovery, sales build up steam

  • Article by: JIM BUCHTA
  • Star Tribune
  • November 29, 2012 - 8:06 AM

Even with winter upon us, home and apartment construction in the Twin Cities almost tripled this month compared with last year, yet another sign that the local housing market is on the mend.

Builders were issued 377 permits this month to build 1,278 single-family houses and apartments, according to the Builders Association of the Twin Cities (BATC). Big apartment buildings made up most of the increase, but builders say the overall construction industry is recovering.

"It's real, and it's been real for awhile," said Bill Burgess, president of Lennar Homes, the state's largest builder.

While such increases are unprecedented, the industry is far from regaining lost ground. It could take years before construction activity returns to normal, Burgess said. Historically, single-family construction would average about 14,000 units, but this year builders are on pace to finish with about 4,000 units.

Still, the recovery is happening quickly. There have been double-digit increases in the number of permits for most of the year, and apartment construction has soared due to pent-up demand. The overall vacancy rate in the Twin Cities metro area is less than 2 percent, and has barely budged despite hundreds of new units that have come to the market.

So far this year builders were issued permits to build 8,235 single-family houses and apartments, a 107 percent increase over last year. Big apartment buildings made up the bulk of the increase, posting a 400 percent jump over last year.

Sales of single-family homes have also climbed -- so much so that the inventory of existing houses on the market would last only about four months at the current sales pace, driving some to wonder if a seller's market isn't just around the corner.

"There are people out there who feel a lot better about the economy," Burgess said. "They've been on the sidelines and those people are coming out and saying 'now is the perfect time to buy.'"

The U.S. Commerce Department said Wednesday that home sales were up 17 percent compared with last year. Home values also jumped, with the median sales price of new homes during October about 5.7 percent higher than the previous month. When adjusted for seasonal factors, though, home sales had fallen 0.3 percent from September to October, something of a disappointment for those who expected sales to keep rising.

Burgess said he's not surprised to see an increase in local permit activity even though nationwide sales were down. Fall is a popular shopping season for new home buyers along with the spring.

Jeff Parks, Minnesota division president for K. Hovnanian Homes, said the company is aggressively expanding in the Twin Cities because its net sales for the fiscal year were 50 percent higher.

"We've seen marked improvement in sales activity at our Twin Cities communities over the past 12 months," he said. "We are actively pursuing land and lot opportunities throughout the Twin Cities area."

Aside from the psychological and economic factors that are driving the market, there's a major demographic shift underway that's helping drive demand for new housing. In most major metro areas nationwide, household growth is rising after years of declines. A survey by Pitney Bowes Software said the Twin Cities is among nearly 400 metro areas where household formation is expected to increase, though not as quickly as it grew from 2000 to 2010.

Tom Exter, Pitney's chief demographer, said over the next five years there will be a 2.8 percent increase in household growth locally.

That projection is well below what would be normal for this market, but it is consistent with what he'd expect in the wake of a recession and supports the notion that long term there will be demand for new housing.

"Hopefully, it's at the beginning of a curve that will trend upwards from here," he said. "I think Minneapolis is fortunate because it was hit like other places, but not as hard and is well-positioned to come back on a slow, steady basis."

Jim Buchta • 612-673-7376

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