Twin Cities home builders are “slightly optimistic” about market conditions for the coming year, according to a new quarterly sentiment survey of 35 industry leaders launched this week by the University of St. Thomas Shenehon Center for Real Estate.
This outlook survey, conducted in partnership with the Builders Association of the Twin Cities, is patterned after St. Thomas’ Minnesota Commercial Real Estate Survey, which began in 2010. It asks survey takers to assign a number, from zero to 100, for each of six questions. A midpoint score of 50 is neutral; scores higher than 50 indicate a more favorable outlook while scores lower than 50 indicate a more pessimistic outlook. The survey also provides a composite score, or overall average, for the six questions.
That same panel of 35 builders will be polled every three months about their expectations in six key areas of the housing market one year in the future. “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." said Herb Tousley, director of real estate programs at the university.”
The first survey, conducted in December 2015, produced a composite index of 53. Here are those scores with a bit of analysis from Tousley:
- Housing Starts: 61 This score indicates an optimistic expectation by the panel that the number of new single-family housing starts will increase in the coming year.
- Square-foot sale price: 69 This reflects the panel’s strong belief that sale prices will be significantly higher a year from now.
- Land prices: 44 This indicates a concern that some of the gains from increased sale prices and more building starts could be offset by higher land costs.
- Availability of finished lots: 56 This indicates modest optimism that there will be more finished lots available over the next 12 months. That’s a good thing for the market since it helps moderate land prices and encourages more construction.
- Cost of building materials: 41 Like land prices, this score indicates a concern that some of the gains from increased sale prices and more building starts could be offset by the higher costs of building materials.
- Mortgage rates: 42 This reflects the panel’s expectation that mortgage rates are going to increase moderately over the next year.
In a statement, David Siegel, executive director of the Builders Association of the Twin Cities, said the survey results will offer useful insights and make it easier to predict trends. “Coming off a flat 2015 for the home building industry, this is a great sign that our builders are optimistic for brighter year ahead...our initial survey results reflect a mixed optimism in some areas and pessimism in others, and we hope our members use this information to stay ahead of trends and issues.”