Builders Remain Hopeful

MINNEAPOLIS, MN - Homebuilding permits took a step back in the Twin Cities last month, offering another sign that the housing downturn hasn't reached bottom just yet. In May, metro area builders pulled 186 permits for 232 new housing units, down from May 2008 (255 permits and 498 units), May 2007 (534 permits, 753 units), and May 2006 (769 permits, 1052 units), according to the Keystone Report.

The latest May numbers were also significantly lower compared to April, when metro area cities issued 118 permits for 419 new housing units. However, the April numbers were driven by a couple of large multifamily projects, which were few and far between in May.

The May numbers come on the heels of the recently released Standard & Poor's/Case-Shiller Home indices, which showed a 6.1 percent drop in Twin Cities area home prices from February to March, the largest such decline in the index's history.

Builders and home sellers blame much of the drop on foreclosures and other distressed properties, adding that traditional properties are holding their own.

Ryan Jones, manager of the Twin Cities division of Metrostudy, a national housing market research firm, said it's good that homebuilders aren't putting out a lot of new inventory just yet.

"It's not what people want to be seeing," Jones said. "But in terms of the permit numbers, the less we continue to put out there, the quicker we will move through the inventory. Nothing much is going to happen in the new-construction market until we see more stability in the economy and the existing home market." Jones said the Twin Cities will probably continue to see these types of permit and price numbers at least through the summer.

"I might be a little worried if we did start to see a big improvement and turnaround now, because the economy isn't ready for it," Jones added. "We might get ahead of ourselves and push back any real recovery. "It's not about housing now; it's all about the economy. We can't fast-forward it."

Mike Swanson, 2009 president of the Builders Association of the Twin Cities, said the industry has responded appropriately to the current situation.

He's "guardedly optimistic" about the future, thanks in part to the $8,000 first-time homebuyer tax credit from the federal government.

"That has been a big help to our industry," Swanson said. "We feel there is still pent-up demand there. Interest rates are still good and the affordability of homes probably hasn't been this good in 10 years."

The Keystone Report, which tracks residential building permits in the 13-county metro area, showed year-to-date numbers of 686 permits for 1,299 units through May 28, well behind last year's pace of 1,073 permits for 1,637 units.

Single-family construction accounted for most of May's activity. Blaine led the metro with 11 permits for 22 housing units, followed by Shakopee (18 permits, 18 units), Maple Grove (15 permits, 16 units), Lakeville (14 permits, 14 units), and Woodbury (11 permits, 14 units). The total value of the new housing units permitted in May was $53.84 million, compared to $98.7 million in May 2008.