Building gloom in the Twin Cities

Construction activity in the Twin Cities metro area plunged in March, but housing permits trumped apartments, a sign that the spring housing market is offering some hope to sales-starved builders.

During the past four weeks 155 permits were issued to build 201 units -- a 34 percent decline in permits and a 73 percent drop in units, according to the Builders Association of the Twin Cities. Of those planned units only 24 percent are multi-family housing, mostly rental apartments and senior housing.

The shift to houses is something of a departure. During much of the past year, multifamily housing represented nearly 50 percent of all permits, though that has declined in recent months.

While the construction industry is still battling the worst downturn since the Great Depression and new home sales are barely puttering along, home builders say that more people are touring new houses on the Parade of Homes spring preview than last year, and some are even buying.

"More people are coming in and saying, 'I've just sold my house.' I haven't heard that in a long time," said Steve Logan, vice president of finance for the Minnesota division of Canada-based Mattamy Homes. His company sold 30 houses in 30 days over the past month, the best in two years.

Foot traffic during the annual Parade of Homes, which is sponsored by the builders association, is closely watched by builders because the event is often an indication of how sales will develop during the coming year.

Wendy Danks, the association's marketing director, said traffic is up based on the number of tickets they've sold to tour two "dream homes." The Parade is free, but the group charges $5 for a tour of the houses as a fundraiser for its foundation. She said that as of last week they had sold more tickets than they did during all of last year's Parade.

"The weekend traffic is insane, but many are just curious or gathering design ideas," he said. "This is the weekend where the serious buyers will return since it is the last. There's a fair amount of interest, but most [potential buyers] have a home to sell first."

Logan is optimistic. He expects a 30 percent increase in home sales this year even though the company has implemented a $5,000 across-the-board price increase on many of its houses. Nonetheless, he said it's hard for some of his potential buyers to get financing.

So far this year builders have pulled 555 permits to build 621 units valued at $170 million -- a third of the pace of the market just five years ago.

The national forecast isn't particularly rosy. Economists at the Wells Fargo Economic Group predict that because of an "enormous" oversupply of housing, the housing market won't return to normal until 2015.

That's in part because distressed sales, which accounted for 39 percent of existing home sales nationwide during February, have caused the National Association of Realtors' median price of an existing home to fall to $156,000, 5.2 percent below a year ago and 32 percent from its July 2006 peak.

The decline in existing home prices also has significantly widened the gap between the median price of a new home, which typically sells for about 12 percent above existing homes. Wells Fargo says that the premium is now closer to 30 percent, causing prospective new-home buyers to choose cheaper, existing homes instead.

"Our members have dug in for the long haul and remain cautiously optimistic," said Rich Riemersma, BATC's president. "It's clear that the residential construction market is still far from healthy."