Friday, March 11, 2005

Housing boom is leveling off

Sales strong, but new applications decline in February

Pioneer Press

Home sales remained robust in the Twin Cities in February, but a drop in applications for building permits could mean that the area's historic housing boom is winding down.

Overall closed sales of new and existing homes, town homes and condos dipped 0.7 percent from 2,731 in February 2004 to 2,712 last month. Meanwhile, permits issued for new residential construction dropped 21 percent from 597 permits in February 2004 to 472 last month, according to data released Thursday.

Still, the median sales price for the 13-county metro area rose nearly 8 percent from $201,824 a year ago to $217,450 in February. That's below the double-digit increases of the boom's peak but still above the region's historic averages. Pending sales, which indicate future activity, rose nearly 7 percent to 4,558 new listings.

Comparisons are tricky because the Twin Cities residential real estate market is coming off a record 2004. With interest rates on 30-year mortgages still below 6 percent and the Federal Reserve continuing to take a moderate approach to raising the target federal funds rate, local Realtors are forecasting a strong 2005.

"Unless something dramatic happens elsewhere, I think we're going to have another record year," said Jim Reiter, president of the St. Paul Realtors Association, calling the level of pending sales "incredible."

"Usually I don't hire an additional person to answer our phones until April, but I hired someone two weeks ago," said Reiter, who is also president of Century 21 Jay Blank Realty in Roseville.

In Ramsey County, the number of closed sales dropped a little over 3 percent. But the median sales price rose to $195,000 in February, up nearly 7 percent from $182,500 in the comparable 2004 period. The median sales price is the midpoint of all home sales, meaning half the housing prices paid were greater and half were less.

Total closed sales in Hennepin County edged up just over 1 percent, but the median price rose nearly 6 percent to $220,425 from $208,530.

The number of home sales that closed last month dropped year-over-year in seven of the 13 counties.

Carver County topped the list, with closings up 20 percent. Chisholm County was at the bottom, with closings down about 49 percent. Wisconsin's St. Croix County continues leading the march up in home prices with the median home sales price there hitting $209,500, up 19 percent from $175,700 last year.

Fast-growing Maple Grove had the most home sales close outside of St. Paul and Minneapolis, with 84 closings in February, followed by Plymouth, Woodbury and Blaine.

Turbo-charged homebuilding and buying driven by low interest rates have been a key engine of the country's recovery, but activity is expected to slow as interest rates rise in the next two years.

One key issue is how quickly the Federal Reserve hikes target short-term rates. The Fed's action could determine whether there's a soft or hard landing when the housing market cools down. So far the pace has been moderate. Industry forecasts call for a 5 percent rise in home values in 2005, fewer housing starts than in 2004 and fixed-rate mortgages of 6.8 percent by the end of 2006.


Builders say the drop in building permits might simply reflect a return to a more normal pace.

"You can't always have every year be better than the year before," said Curt Swanson, vice president of the Twin Cities Builders Association.

The total number of planned units also declined 19 percent compared to a year ago, from 905 in February 2004 to 735 last month.

The total number of permits for January and February is the fewest since 1998, but the total number of units is still higher than in the late 1990s, reflecting the greater proportion of multifamily housing.

The value of new properties remains high: The 1,082 permits issued in the first eight weeks of this year were for properties valued at $344.8 million, behind only last year and 2003.

A drop in attached housing such as town homes, condos and apartments from the highs of the last few years has contributed to the slowdown as well. "There was so much built over the last few years, so that market may be cooling a little, not that it's dead," Swanson said.

Last year 52.7 percent of the total planned units were for attached housing, but so far this year attached units account for 42.7 percent of total planned units.

For February, the top growth cities in overall permits were Lakeville with 34, Woodbury with 32, Cottage Grove with 27, and Maple Grove and Minnetrista each with 22.

In planned units last month, Bloomington took the lead with 95 units (all in one building), followed by Lakeville with 66, Ramsey with 43, Woodbury with 40 and Rosemount with 37.


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