I just posted the Building Permits and Housing Starts for the State of Minnesota, and now I see they just released the Minneapolis/St Paul charts. This is what counts for us, not the national stats or State stats – although they are a good barometer.
As you can see we are “bouncing along the bottom” still. I wish we had data going back further to see how this compares to other recession periods. Housing Starts and Building Permits will continue to bounce along the bottom until the region starts creating more jobs, supporting additional population (immigration and natural birth). We need to keep a close eye on the employment figures, see chart following the permits and starts below:
These were released today (8/25/2011) from the US Department of Commerce: Census Bureau.
As you can see with this chart, we have growing spread between employment and the labor force. (what the unemployment rate tracks). This shows us we have approx 122,728 unemployed in the labor force in the Twin Cities 7 County region. Assuming we could get to full employment, that is a lot of demand for housing. But let’s just calculate the difference between Jan 2005 and Jan 2011, that is approx 55,259 additional unemployed workers in the Twin Cities 7 County metro region. Not all of them will buy or rent housing, but a lot of them will. Keep in mind, we have approx 26,000 properties for sale in the Twin Cities metro region… If we use the old ratio of 1 housing unit to every 2 jobs (a number I pulled out of thin air..) we end up with demand for approx 27,629 housing units more than depleting our all of our supply. (double-check my math! I might have miscalculated on the back of a napkin here..) If that were to happen, builders would need to build approx 20,000 housing units to allow for immigration, new household formations, and move-up buyers. If employment turns around quickly, we could end up with a housing shortage. Not that we should be holding our breath right now, doesn’t look like anything promising that direction on the horizon yet..
Increasing employment is the only way this market will recover…
If you have read the headlines today, you will see that New Construction sales are the worst in 50 years. These reports are based off of the US Census report issued this morning. Minneapolis Star Tribune covered this story as well.
Sales of new single-family houses in July 2011 were at a seasonally adjusted annual rate of 298,000 … This is 0.7 percent (±12.9%)* below the revised June rate of 300,000, but is 6.8 percent (±13.5%)* above the July 2010 estimate of 279,000.
The Twin Cities did a little better, we saw an increase of 23.5% in new construction sales from July 2010 to July 2011.
Looks pretty terrible. This is based on a National statistic, but how does it relate to our Twin Cities market? Below is a chart to compare, this chart only goes back to 2009 – but shows us the recent activity. We are in slightly better shape than this time last year. We are also tracking about right for New Construction inventory vs. Previously Owned Inventory, approx 1/5. However on the Sales, new construction is only accounting for about 6% of the sales – this should be closer to the 1/5 range.
One of the reasons for this disconnect is financing. Builders have almost no option on financing new inventory on a spec basis, so a good portion of the “actives” are listed as “To Be Built” (just a proposal). Buyers are reluctant to buy a house that can only be seen on paper…
On a side note, when the market comes back it is going to feel like it happened overnight. With the lending restrictions, it is going to be extremely difficult for Builders to gear production back up when our market will need additional inventory. This is not a problem yet, but I am predicting it will be.
One of the key components we need for a healthy real estate market recovery is Jobs. If you don’t have a job, it is rather difficult to buy a home. Unfortunately this report is bad news. We are back up to 7.2% unemployment rate in Minnesota.
For your property values to recover, we need people working. If this trend of higher unemployment continues in Minnesota, we will continue to see the housing prices fall.
There is a ratio used when we calculate housing units needed in an area. This number is general number used from NAHB, and it can vary depending on the type of jobs created.
But for general purposes, for every 1.1 job created there is need for 1 housing unit.
Instead of adding 1.1 job, we are taking away 1.1 jobs. What do you suppose will happen to the price of the homes?
No more Location, Location, Location. Now it is Jobs, Jobs, Jobs!