For 2014, new home sales drop 1% in Twin Cities

An urban rental boom wasn't enough to offset a decline in suburban new home sales in the Twin Cities this year, causing a modest correction in the construction recovery.

Throughout the 13-county region, builders were issued 4,914 permits to build 10,093 units, according to a year-end report from the Builders Association of the Twin Cities. That was a 1 percent decline in new units compared with 2013, which was the best year for new homes since the housing collapse in 2008.

"We expected 2014 to show an increase, but it didn't," said David Siegel, executive director of the Builders Association of the Twin Cities.

Nationwide, new home sales were on track to end the year at a 440,000-unit pace, only slightly better than last year.

New rental apartments were built at a record pace this year in the Twin Cities metro, helping keep contractors busy. In Minneapolis, for example, more than 2,300 multifamily units — mostly luxury rentals downtown — were built, making it by far the most active housing market in the metro. Maple Grove was the next busiest with 512 units, mostly single-family houses.

Multifamily housing accounted for 54 percent of all housing construction in the region last year.

Experts blame the correction on factors ranging from a lack of buildable lots to growing concerns about the global economy. After spending much of the past decade burning through an inventory of unsold homes, local builders spent this year trying to delicately balance supply and demand.

Siegel said the industry is "fairly concerned" about 2015 and that several regulatory changes that are expected to make houses more expensive. An update to the energy code could increase the cost of a new house by $3,000 to $8,000, and a new sprinkler mandate for houses that are more than 4,500 square-feet is expected to add $9,000 to $12,000.

Those increases are in addition to higher materials and labor costs, said Shawn Nelson, president of New Spaces. "Builders are feeling the full effects of the regulatory burdens that continue to raise the price of new homes in Minnesota," he said.

Mark Vitner, a senior economist at Wells Fargo Securities, is optimistic that sales will improve. His most recent forecast calls for new single-family home starts to increase 10 to 15 percent next year locally and nationally.

Strengthening economic fundamentals in major cities, deep pent-up demand and easing credit standards will help drive sales in all segments of the housing market, he said.

"We're coming off incredibly low levels of housing construction," Vitner said. "We're optimistic about the outlook for housing."