July Building Permits and Housing Starts for the Midwest (NAHB and Census Bureau)

Well, today the news was released on the July Building Permits and Housing Starts from the National Association of Home Builders and the Census Bureau.  Nationally building permits and housing starts are down according to these reports.

If we take a closer look at these figures, we can identify the conditions in the Midwest Region.  Here is the data for the Midwest region:   The Midwest Region’s building permits are down.  This is just showing us what we already know, that the housing sector is struggling to gain traction.  Our housing starts jumped early this year and are now dropping off.   

I predict these numbers will climb in the Twin Cities region and possibly the Midwest, judging by the housing inventory dropping in the Twin Cities.  As we get down to 3 to 5 month supply of homes, the building sector will need to kick into to gear to provide more housing.  In order for us to get to that 3 to 5 month supply, we need JOBS.

Midwest Region Building Permits
Midwest Region Housing Starts

The Twin Cities losing Population and the impact on the housing market.

After reviewing data sets from the Metropolitan Council  and running some spreadsheets, I have come up with a couple graphs that illustrate what may be  ahead for the Twin Cities real estate market.  These are assuming Metropolitan Councils population and household forecasts are in the ballpark of what will happen.

This Chart shows the Population and the Households from 2000 to now, these we can assume are accurate figures.  The question comes into play when we look into the future.  Met Council forecasts that the 7 County Twin Cities Metro area will increase in population and households by 2020 and by 2030.  These forecasts are in putted on the chart.

Metropolitan Council figures on Population & Households 2000-2030
 
The graph “looks” like the Met Council is extremely optimistic on our population and household growth in the future, however if you look closer you will see the chart jumps from 1 year intervals to 10 year intervals.  There are 2 2010 figures as the data was compiled from their “forecast” and “estimates”  Their “estimates” are past tense, so they are fairly accurate.
Their  “forecast” missed the actual or “estimate” by only  80,251 households, just slightly larger than a large suburb or a 6% miscalculation.  I will cut them some slack, when that forecast was made I don’t think anyone had any idea what kind of turmoil the economy was going to be going through.  
On a side note, these are the figures that developers and home builders based their production on. Is it possible the Met Council contributed to our regional over surplused housing market by over forecasting growth?
 
There is also an interesting trend appearing in these charts. There is a decline of population and households between 2009 and 2010.  According to Met Councils data, the Twin Cities 7 County Metro area had a decline of 32,245 in population and 20,763 households between 2009 and 2010.  This is an alarming trend if it continues.  I will go out on a limb and jump to a radical conclusion that the reason for the population and household loss was due to the un-employment rate and these people moved out of the area or out of the State to seek employment.  You may have other conclusion on why you think we are losing population, which is a good topic for discussion.
 
If this trend continues it could do severe damage to the regional housing market.  Come to think of it, I don’t think this region has ever had a drop in population and households.
 
Let’s see what data is available.
Twin Cities population and households 1970-2010

The Met Council had some data going back to 1970, that is as far back as I could find data.  The data also was only in 10 year intervals up until 2000.  So it is possible there was a small decline somewhere in there and then bounced back up.  Either way, this is still an ominous sign for our region.

 
These future projections could be wrong if the Twin Cities 7 County region does not produce jobs.  What could impact the job growth?  Large corporations and small business moving to more tax friendly markets is a real possibility as well as the health of the  national and global economy.
 
Metropolitan Council Housing Units & Building Permits
 
If we were to assume that these projections will be in the ballpark of being accurate.  Our population growth would easily absorb the surplus inventory of housing by 2020. (hey that’s only 9 years away!)
If you look closely at the bottom of the chart you will see some small red dots with numbers above them.  That was the “housing boom” glut of new construction in the Twin Cities.
Keep in mind that the Housing Units and Building Permits represented here are for all housing types; apartments, townhomes, single family, condos, and coops.
We would likely see a need to increase the production of housing to meet future demand probably within the next few years.  The question remains on what kind of housing units will be needed.  To gauge this we will need to understand the types of employment the households will have – income to be precise.  That may range from mobile home parks to luxury homes, or may cover all types of housing and price ranges.
2009 Existing Home Sale Prices
The most recent data on Existing Home Sale Prices is from 2009.  This does not show our entire housing stock, but a good representation of the current real estate market.  It would be fairly safe to assume that these trends will continue for the foreseeable future.  This gives us a sense of “demand” by price range for the entire region. 
We do have a surplus of housing in the Twin Cities, however – if you dig a little deeper into each individual market you will discover that there is a shortage of certain types of housing. 
 
If these “forecasts” by the Met Council are accurate then there is hope on the horizon for the Twin Cities real estate market and the local home builders.
 
 If the population and household forecasts are not accurate and we continue to lose households, I am afraid we are in for a long ride…
 
What the housing market needs is strong job growth.
 
%d bloggers like this: