New home construction permits rose slightly in Twin Cities this month

Housing construction and the outlook among builders improved slightly in the Twin Cities this month.

During July, builders were issued 480 permits to build 1,109 units in the metro area, according to data compiled by the Keystone Report for the Builders Association of the Twin Cities. That was a 1 percent increase in permits and a 25 percent increase in new units over last year.

"The industry is picking up but still at a slow pace," said David Siegel, executive director of the association.

The report comes after an unusually robust increase in single-family construction during June, a month when single-family construction outpaced apartments by a long shot. Despite the roller-coaster performance of permitting, builders are less pessimistic than they've been, according to a recent survey by the University of St. Thomas Shenehon Center for Real Estate in partnership with the builders association.

The Twin Cities Home Builders Survey polls the same panel of 35 industry leaders every six months about its expectations in six key areas of the housing market one year in the future. The first survey, which asked panel members to rank their feelings on a scale of 1 to 100, was conducted in December 2015.

A score of 50 is neutral; anything higher indicates a more favorable outlook, and the lower the score the more pessimistic the outlook. In December, the survey produced an index figure of 45. In June, the score was 46.

Herb Tousley, director of Real Estate Programs at the University of St. Thomas, said the participants were strongly optimistic in their expectation of increasing sale prices per square foot and the number of single-family housing starts, but were moderately optimistic about an increase in availability of finished lots in the coming year.

"The expectation of increasing land prices and a belief that the cost of building materials will increase over the next year was a cause for concern that tempered the composite index," Siegel said.

He said builders also worry about the prospect that higher mortgage rates will increase the total cost of purchasing a home.

Back on the monthly permit data, the Twin Cities in July experienced only a 2 percent increase in permits to build single-family houses but a 49 percent increase in the number of multifamily units. That jump was due mostly to large apartment projects that are about to break ground in two Twin Cities suburbs. A single permit can be issued to build more than one unit.

Though apartments dominated the market in July, companies that build single-family houses are still on track to have their best year in about a decade. During the first seven months of the year, more free-standing houses have been permitted for construction than apartments.

And with apartment construction shifting from the central cities to the suburbs, most new housing this summer has been concentrated in the inner-ring suburbs. During July, for example, Golden Valley and Bloomington were tied for the most permitted units (187), followed by Minneapolis (141) and Lakeville (98).

Ian Peterson, division president for David Weekley Homes, which has several upscale developments in the western suburbs, including the Cove on Lake Minnetonka in Minnetrista, said that a slight uptick in summer sales has been driven primarily by the relocation buyer.

"While we haven't seen a tremendous jump in sales numbers, [this] is a more serious buyer looking to make a move," he said. "This could be driven by the tight resale market and people selling their existing homes wanting to move up."