The numbers we were waiting for, Building Permits for Minneapolis / St Paul. These are the building permits for 1-Unit structures (single family homes) not seasonally adjusted.
February 2012 is about 22% year over year increase and 18% increase over January 2012. These are great numbers, but we are not yet out of the woods on this. Take a look at the graph below to see how this looks in the overall picture, still bouncing along the bottom.. There is reason for optimism with the low inventory of homes for sale in the Twin Cities – this will put additional demand on new housing units.
It is hard to predict the future, if we look at just the existing inventory and the current pace of pending sales – it would be tempting to call this the bottom. We still have a lot of headwinds including; increasing gas prices, food prices straining family budgets, troubles in Europe that could send the economy into a downturn, added regulations in the mortgage business and to top it all off – it is an election year. There is also the Shadow Inventories, although I am not overly concerned about this as a factor this year. With all the unknowns out there, I will venture to guess we will see a small increase in building permits – but not much upward movement on house prices. Even if there is huge demand for new homes, the builders would have a difficult time meeting the demand with the lack of funding available from banks. This will work its way out, but it will take time. Hopefully I am completely wrong and the housing market takes off this year..
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…
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
UPDATE: The NAHB President has a video commentary on the national report. Good analysis worth watching.
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.
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.
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.
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.
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.