The Big Story Blog

Forecast sees tough times continuing in MN new housing

Posted at 2:22 PM on December 1, 2011 by Paul Tosto
Filed under: Housing and mortgages

Lawmakers and budget officials may be breathing a little easier this afternoon on news that Minnesota now projects a budget surplus through 2013.

Dig through the detail of the state economic report released today, though, and there are enough worrisome numbers to make you think twice. Take a look at what the forecast has to say about housing and residential permits:

While improving job growth and increasing household formation rates will help absorb most, if not all, excesses into the market by 2014, there will continue to be very little demand for new residential home construction in 2012 and early 2013.

As a result, after nearly six years of severe declines, the total number of authorized monthly residential building permits in Minnesota will continue to drag along the bottom through much of 2012 before beginning a modest recovery in early-to-mid 2013.

Any employment rebound in construction will lag a recovery in building permits by between 6 and 9 months, thus a "catch up" period is assumed in the forecast. If household formation rates continue to worsen in 2011 and 2012 as a result of weaker labor market conditions and the housing downturn continues to deepen later into 2013 it is unlikely that Minnesota's economy will perform as forecast.

The emphasis at the end is mine.

While no one expected the struggling housing industry to lead the way during the recovery, this is the first time I've read that new housing construction could damage a fragile recovery.

The overall construction job numbers in Minnesota are grim, still down about 25 percent, some 30,000 workers, from the start of the recession that began four years ago this month.

construction.jpg

When do things get better? Here's the budget forecast chart:

housingformation.jpg

Things get better when the number of new households -- young people leaving their parents' houses and buying their own homes -- rises faster than the number of new homes built.

Right now that's not expected to happen until 2013. And If the construction business doesn't improve the way forecasters expect, the good budget numbers today won't look so great in a year.


About Paul Tosto

Paul Tosto

Paul Tosto writes the Big Story Blog for MPR News. He joined the newsroom in 2008 after more than 20 years reporting on education, politics and the economy for news wires and newspapers across the country.