Twin Cities builders have cautious optimism for 2018

Homebuilders in the Twin Cities are feeling pretty good about their expectations for market conditions during the coming year, but they aren't without worries, especially when it comes to land and materials prices, according to a recent survey from the University of St. Thomas Shenehon Center for Real Estate and the Builders Association of the Twin Cities.

The Twin Cities Home Builders Survey is patterned after St. Thomas' Minnesota Commercial Real Estate Survey, which began in 2010, and it focuses on builders of single-family houses.

Herb Tousley, director of real estate programs at St. Thomas, said the industry leaders polled every six months are actively engaged in studying both the demand and supply side of the housing market. "Since they are involved in creating new housing units and adjusting supply-to-demand conditions, these individuals are close to the actual changes taking place in the market," he said.

The survey polls the same 35 industry leaders about their expectations for the upcoming year in six key areas of the housing market annually, in June and again in December. These experts are asked to assign a number from zero to 100 for each of the six questions. A score higher than 50 indicates a more favorable outlook.

Here are the scores for each of the six questions that were asked in June.

Housing starts: 65, an increase from 61 in December 2016 and an indication of high expectations that the number of single-family housing starts will show a marked increase in 2018. Last year was one of the strongest in recent years with about 5,300 permits issued.

Square-foot sale price: 74 compared with 72 in December, reinforcing the panel's continued expectations that home prices will continue to increase, and the belief that sale prices will increase at a rate that will more than offset the expected increases in project costs.

Availability of finished lots: 60, a sharp increase from last December when the score was 51. The increase reflects a growing expectation that there will be more finished lots in 2018 compared with this year.

Cost of building materials: 24, compared with 29 in December, suggesting that builders believe some of the gains realized from higher sale prices and an increase in building starts will be offset by higher costs to build homes.

Mortgage rates: 28, unchanged from last year and an indication that the panel continues to expect mortgage rates to increase during the next 12 months. Although mortgage rates increased during the last quarter of 2016, the majority of those surveyed expect an additional increase of a quarter to one-half percentage point within the next year.