Rally sparks hope for Minn. homebuilders (2:56 p.m. 1/13/10)
By Brian Johnson
Dolan Media Newswires
Minneapolis — Twin Cities homebuilding activity in 2009 was no match for the juggernaut years of the mid-2000s, but a late-year rally gave builders reason to believe that the industry’s recovery is just around the bend.
“The train will pick up a little more speed” in 2010, said Mike Swanson, 2009 president of the Builders Association of the Twin Cities and Minnesota Division vice president and corporate risk manager for Rottlund Homes. “It has left the station.”
But he hastened to add that it’s still moving slowly.
Residential construction in the Twin Cities — as measured by planned housing units — declined for the sixth straight year in 2009. Local cities churned out 2,599 permits for 4,405 new housing units, according to the Keystone Report, which tracks permit activity in the 13-county metro area.
It’s a far cry from 2003, when the metro area peaked with 11,472 permits for 19,000 units. The 2009 numbers also pale in comparison to the far less frenetic years of 2008 (2,799 permits, 5,397 units) and 2007 (4,888 permits, 8,061 units).
But builders have some encouraging news to hang their hard hats on: a strong finish. In the last two months of 2009, the Twin Cities had 523 homebuilding permits for 997 housing units, up from 365 and 644 in the comparable 2008 period.
“Even though this isn’t the peak time of year for people to be out looking, there is a lot of activity,” said Gary Aulik, 2010 president of the Builders Association of the Twin Cities and CEO of St. Louis Park-based Aulik Companies.
“I definitely think there is reason to be optimistic. I don’t think anybody is doing back flips over the amount of volume they are seeing, but at the same time I see some optimism on the part of builders and remodelers.”
An extension of the federal homebuyer tax credit may be driving the improving numbers. Since homebuyers are now eligible for up to a $6,500 tax credit through April, builders are upbeat about the first quarter of 2010.
The tax credit has “definitely spurred some activity in the entry-level market, which is where the recovery has to be,” Aulik said. “We have to accept that if a recovery is coming in homebuilding, it has to come in entry-level homes.”
On the remodeling side, the year started tough but gradually got better, according to Shawn Nelson, president of New Spaces, a Burnsville-based remodeling firm. Low appraisals, declining home values and other factors that dogged the new construction industry took their toll on remodelers, too.
“As the year went on, those loosened up, things got a little better,” he said.
Nelson and other remodelers are getting fewer large projects, but more small ones. Weatherization projects — such as new windows and attic insulation — have been particularly popular, as people try to take advantage of rebates and other incentives to make their homes more energy efficient.
“I don’t think 2010 is going to be a record-setting year,” but improvement in the remodeling sector should slowly continue, Nelson said.
Aulik’s company does new construction and remodeling, which arguably puts it in a good position to react to the vagaries of the market. Some years Aulik does about a 50-50 split between remodeling and new construction; other years it may swing 20 percent one way or another, he said.
He urges builders to be nimble as they move forward, and to be in tune with the needs of an increasingly sophisticated home-buying public. For example, he said, customers have been receptive to the concept of green construction and energy conservation.
“Operating the way we did for many years is no longer a practical solution to moving forward,” Aulik said. “If you want to be profitable, live through this and fight another day, you have to be malleable.”