Metro home builders: Worst year in more than a decade

Dogged by a stagnant housing market and an overhang of unsold inventory, 2007 was the worst year in more than a decade for Twin Cities-area home builders, according to year-end data released Tuesday by the Builders Association of the Twin Cities (BATC).

In 2007, home builders were issued 4,888 permits to build 8,961 units in the Twin Cities metropolitan area. That's a 29 percent decline in new units over 2006 and a 53 percent decline since the market peak of 2003.

"The past year significantly tested consumers' resiliency and confidence," 2007 association President Michael Noonan said. "Consumer confidence is the foundation of our market, and although eroded, it remains standing for us to rebuild."

The slowing market challenged builders, too. They drew only 275 permits to build 557 units in December -- a 43 percent decline in permits and a 28 percent decline in new units compared with December 2006.

The market is in its fourth year of contraction after an astonishing peak in 2003, as buyers worry that the market hasn't hit bottom and that prices will continue to fall, or are nervous that the houses they own won't sell if they decide to buy new ones.

Slowing down the pipeline

At the same time, home builders pulled back dramatically much of the year, waiting for their inventory to sell. Developers plan construction activity years in advance, and many have been left with houses that are finished, but unsold, and a backlog of developed lots awaiting buyers.

It's a move that comes at the end of a tough year for builders. Sales of existing homes, which heavily influence new home sales, are down significantly. According to the latest data from the Minneapolis Area Association of Realtors, pending sales -- transactions yet to close -- were off 20 percent in November. The spiraling subprime mortgage meltdown only added to market worries.

In an attempt to counter sagging consumer sentiment and "distortions of the press" about the state of the market, BATC last fall launched a $300,000-plus "buy now" public relations campaign that includes billboards and a blog-style website called www.openthedoortc.com.

Few companies closed

Despite the steep declines in construction, few companies closed or consolidated. But many projects, including some high-profile condo projects in downtown Minneapolis, were canceled or put on hold.

Despite those cancellations, the downtown Minneapolis condo market buoyed last year's construction figures. Minneapolis led the new-unit list, with plans for 1,012 units, mostly condominiums. Woodbury ranked a distant second with 459 units, followed closely by St. Paul with 409.

"I think our numbers are going to be way down in 2008," said Minneapolis-based market research analyst Mary Bujold of Maxfield Research. "We needed to continue to curb supply because we still have too much out there."

That doesn't mean new construction isn't selling and that there isn't strong demand in certain areas. She said that in Minneapolis, resales of existing condos in 2007 were on par with the previous year and that prices inched upward a bit, a counter to what happened throughout the broader market.

BATC president Noonan, who is also vice president of the Minnesota division of Rottlund Homes, is optimistic that the market has turned a corner and that lower prices, builder incentives and an abundance of unsold homes will help drive buyers back into the market.